Tag Archives: EXCHANGE TRADED FUNDS

What is your take on the current real estate market? Is it a good time to buy REIT, builders, personal housing, etc?

I think it’s important to preface by saying that there are a number of ways to buy into these kinds of investments. In recent years, more and more investment firms have developed investment products to allow investors to invest in specific sectors of the economy (including the ones mentioned). Some of these include mutual funds, index funds, and exchange traded funds (ETF’s). My answer to you would depend on how you are intending to invest in these areas.

The sectors mentioned have been very hot for some time now. While the Federal Reserve has stopped raising rates (and there is now a strong indication that they may cut rates in the spring), a significant inventory of unsold homes that were purchased by Real Estate speculators could cause the price of homes to continue to decline. On the flip-side, while the Fed has raised rates, prices of home mortgages have been trending down for several months now. While it is difficult to say whether this will continue, I see this trend as a factor that will help to stabilize the housing market. When money becomes cheaper to borrow, this makes homes more affordable. You will find many people who agree that the fevered housing market of the last several years was fueled by falling mortgage rates. In my own opinion, I would not be surprised to see home prices stabilize in 2007 or early 2008. If the scenario were to unfold in this way, one could argue that we were approaching a bottom. It’s also interesting to see that home-builders like Toll Brothers and (symbol TOL) and D.R. Horton (DHI) have seen their stock prices rise as the rates on the 10 year treasury bond have fallen (this is what many mortgages are tied to). This could be another indication that much of the housing bubble has been priced into securities of home-builders.

As mentioned, there a many ways to invest in this area. You could go out and buy a single stock (like a Toll Brothers) or a publicly traded REIT. When investing in in individual stocks, your results are tied not only to the success of the underlying trend, but also to the results of that company. This obviously introduces more risk into the picture. An alternative to buying individual stocks would be to buy a basket of these kinds of companies through a mutual fund, index fund or ETF’s. ETF’s are becoming the rage on wall street due to their tax efficiency, low cost, and liquidity (not all ETF’s are liquid).

Ishares , Powershares, and Wisdomtree  are some of the companies that offer ETF’s in various sectors.

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