The Great Real Estate Debate

Every day we hear news about millions of foreclosures in the pipeline. We also hear that the delinquency rate on home loans is improving. In the debate regarding the recovery of the economy, certainly real estate is front and center. We can’t have a strong recovery unless real estate contributes positively to economic growth. CNN/Money posted an interesting article during the Holidays. On one side, Bill Ackman, founder and CEO of hedge fund Pershing Square Capital Management and Warren Buffett both stand on the side of the bulls who say it is time to start investing in real estate. Meanwhile, , a senior vice president at RealtyTrac which is an online marketplace for foreclosure properties, highlighted the impending foreclosures to predict lower home prices in 2011. Who is right? In reality, the news will probably be somewhere in-between. In the next two weeks, we will list the reasons for and against a real estate rebound in 2011. Meanwhile, market watchers will be looking at the employment report this Friday for evidence of how the economy was doing as we ended last year. Certainly, the news that initial claims for unemployment dropped below 400,000 last week is good news although readings over the Holidays can volatile. Overall, the direction has been positive in the past two months with regard to lessening unemployment claims.

The reasons for the real estate market to get stronger in 2011–

• Homes are more affordable than they have been in a generation due to low rates and lower housing prices.
• The economy is improving and jobs are being created, unlike the previous three years. As the economy improves, household formulation will rise as well.
• While credit standards are tight, we have probably reached the height of the credit cycle and as real estate recovers banks will be more anxious to lend. Along the same lines, as rates have crept up, refinances are down and that means banks will be competing for a smaller market share of home loans.
• The population is growing. We are now over 300 million. These people need to live somewhere. Even those who are foreclosed upon will need to live somewhere–and not necessarily in an apartment.