Thursday, July 19, 2007

Contrary Indicators

by Osman Parvez
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I've been a little too busy lately to blog as much as I'd like, but every once in a while some information pops on my radar screen and screams for attention.

You've probably heard about the collapsed Bear Stearns subprime hedge funds (subprime lending is largely made up of loans made to people poor credit histories, essentially riskier loans made a higher rates). There's widespread concern (arguably overblown) that the problems in the subprime sector and in its many derivative products, including credit default swaps, will spread widely. Some investors are worried that this will be corrosive to the capital markets and our economy in general. With rising foreclosures, the problems with subprime are likely to get worse before they get better. There seems to be consensus on that. The question is largely about how widespread the carnage will be.

In the midst of excessive coverage on subprime woes, the following piece suggests some very smart investors are now staking contrarian bets on real estate. I suspect they're doing so in markets that have been impacted by foreclosures and the post bubble downside, but also where the long term drivers for growth remain strong (sound like any place you know?) . Remember, markets tend to overshoot intrinsic value in both directions. The herd mentality creates great investment opportunities.
Insiders at REITs Like What They See
By Nicolas Brulliard

Some investors have abandoned real-estate investment trusts lately, but REIT insiders have been rushing in.

REIT executives and directors spent close to $60 million on their companies' stocks in the second quarter, the largest amount in the past 26 quarters, according to research by Thomson Financial.

After performing strongly in recent years, REITs have come down sharply this year. The result is that REIT stocks are trading at a significant discount to the value of their underlying real-estate assets, said John Lutzius, chief executive of REIT research-and-trading firm Green Street Advisors.

"There is a big disconnect between prices on Wall ...


Note: I don't sell REITs nor am I advising you to run out and buy a bunch of real estate blindly. I'm suggesting that there now may be opportunities in real estate, particularly because many are looking elsewhere. The insiders in this industry are apparently moving in. Your agent can help you find some very nice investment properties to own long-term and help you negotiate a great deal. Hint...start with properties that have the longest days on market (DOM), be prepared for tough negotiations, and look for increasing opportunities as the summer selling season wraps up. Oh, and always do you due diligence. Consult with your professional advisers before making an investment decision.

p.s. If you've been paying attention to this blog, you know that our local real estate market is doing pretty well. local prices have stayed solid and sales volume has not dropped much from previous years. As expected, there is somewhat more inventory, but nothing close to what's happening in the former bubble markets. Some Counties are seeing much more in the way of foreclosures, others seem to be holding up fine. Boulder, by the way, continues to show one of the lowest foreclosure rates in Colorado. I'll publish a foreclosure update shortly.


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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

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