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Each week, I review all the important economic data that comes out. A lot of the time, I’m analyzing it versus Wall Street analysts’ expectations. More importantly, though, I’m searching for clues within the data.
But the one thing I try to consistently do is uncover longer-term trends, as opposed to getting caught up in just one, single data point.
Right now, the markets are chock-full of economic data. And as I was reviewing last week’s various economic releases, I found that most generally indicated the economy was losing positive momentum. Manufacturing data in particular has shown a slowing of growth since early April.
However, despite the general bearishness of economic data, I also noted something curious.
The only bright spot we got in the data last week? Oddly enough, it was in the housing market.
Is it Time to Build
Positions in Housing?
Both existing- and new-home sales beat expectations, and showed a continuation of a very slow recovery that began in the summer of 2010.
As I step back and think about it, it seems that I am consistently seeing better and better news regarding the domestic housing and real-estate market. And, to a point, it’s kind of flying under the radar.
As you know, being a contrarian investor, I’m constantly on the lookout for sectors that have been beaten down. But that’s only the first step.
Once I’ve found those beaten-down names, I’m also watching their performance very closely — particularly, the ones whose performance improves a bit each month.
Housing is one of the few sectors I can find that fits that bill.
As a result, as we endure this global-macroeconomic-dominated, euro-centric trading environment, I will keep an eye on housing and, in particular, Real Estate Investment Trusts (REITs).
While REITs are not an exact proxy for the real-estate market, their performance tends to be positively correlated. (That is, they move relatively in tandem.) So, a continued recovery is generally positive for these REITs.
2 Reasons to Like REITs Right Now
In addition to the slow, gradual recovery in housing, most typical REITs’ main properties — office space and retail locations (like malls) — are actually in two of the brightest spots in the economy: Corporate profits (and cash-on-hand in corporations) and consumer spending.
Additionally, the dividend yield on REITs is very attractive, especially in a zero-interest-rate environment.
Now, I’m not saying that the real-estate market is going gangbusters again or that housing, nationally speaking, is in a bull market. It will take years for it to recover, and there are still plenty of pitfalls to be wary of.
Yet, the data also shows that there is a very slow, gradual recovery taking place in housing. It’ll take a long time to get back to normal, and there will be fits and starts, but things are heading in the right direction.
One way to play REITs is through the Vanguard REIT ETF (VNQ), which is trading in the $63 area as of this writing. It’s one of the best-diversified and well-balanced REITs on the market, and pays more than a 3 percent yield.
As contrarian investors, we always want to be on the lookout for sectors where the fundamentals are improving, before the rest of the market realizes it. And even though this sector is slow-moving, it still looks like it will continue on the path toward recovery.
Best,
Tom
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Tom Essaye oversees Weiss Group’s Million-Dollar Contrarian Portfolio, in which company founder Martin D. Weiss has staked $1 million of his own money.
Tom began his financial-services career at Merrill Lynch, where he worked on trading desks on the floor of the New York Stock Exchange. While on the floor, he managed multi-million dollar equity trades from some of the biggest hedge- and mutual-fund firms.
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There is not going to be any “back to normal”, for real estate or for the “economy” generally; if by “normal” we mean a Country of owner-occupied real estate and secure middle class jobs and other assets. The reason we are starting to see some “recovery” in real estate assets, along with a recently noted strong demand for rentals, etc., is that real estate assets are being bought up at what amounts to historically “bargain” prices, by investors large and small.
The REITs represent the large force, but many previoulsly securely employed “small investors” are getting into the landlord business. Of course this will not work out for all, but those who profit will become larger, taking over for those small ones who are not good at property management. The term “ownership society” will come to be better understood along the way, as we continue to see the growing division between the, relatively few, owners and the, relatively many, “owned”.
I knew of some people fliping homes in detroit they were purchasing 10-15 yr old homes 4 bed/ 3 bath mostly 2200-2500 sq feet they were purchasing these homes for 5-8 k and reselling them for 11-14 k but now since detroit is bankrupt the average home is only selling for 6k it wasnt worth their effort , so it got to the point it wasnt worth doing anymore, if real estate is picking up its only because the REOS got cheaper ,I monitor foreclosures very closely, homes in the LIS PENDENS status are coming in at 3-1 over present foeclosures. Aggressively priced REOS sell , but thats only because the price per square foot is dropping. BUT LETS LOOK AT THE BIGGER PICTURE all the average person hears about in th news is greece and spain , SPAINS external debt/GDP ratio is over 230.5% WOW…………GREECE is 221.7% also bad but ask yourself this why doesnt anyone hear of IRELANDS external debt/GDP ratio of 1245.6% YEA THATS NOT A MISTAKE ON MY PART they will be over 1250% next week mid week and they are part of the PIIGS nations WHICH ARE PART OF THE EURO sooooooooooooo how come nobody mentions IRELAND at over 1245% or ENGLAND at 487.8% or FRANCE at 273.7% or PORTUGAL at 258.4% even GERMANY is at 205.9% and ITALY another problem country at 162.1% OH WELL everybody already know about ITALY.
Dear Tom,
Since you are a “Contrarian” investor, how much of your own money is invested in REITs/ real estate ETFs ?
Also, please keep us informed on how much more money you going to invest in real estate, gold mining stocks, and bank stocks when the market starts crashing.
This is unreal – on one hand, Mr. Weiss keeps telling us there is a big crash coming and to be in cash, and on the other hand, his own so called experts are recommending the opposite positions in sectors that will go down the most !