Houses going for a dime a dozen
Today's Financial News - Posted January 26, 2009
The markets managed to stay in positive territory for the day, but why they were there is beyond me. The unemployment lines are growing by the mile, the real estate market is slumping and our government is buying our votes. Fortunately, there will eventually be some light at the end of this tunnel.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore—(TFN): It is hard for me to believe that the equities market found the muster to remain in positive territory for as long as it did today. During a day when tens of thousands of job cuts were announced, investors were fooled into thinking some Big Pharma merger news and a bit of surprising economic data eliminated some of the risk inside the equities market.
I must admit I am downright mortified to hear the news that Home Depot (NYSE:HD) is firing 7,000 workers, Caterpillar (NYSE:CAT) is tossing 5,000 employees, General Motors (NYSE:GM) is laying of some 2,000 of its remaining workforce and Sprint Nextel (NYSE:S) is slashing 8,000 jobs. Those are horrific figures.
And remember, that is just the big-name firms and just the reports from today. Do not forget the countless jobs lost last week and the small, privately owned businesses cutting payrolls in equal proportions.
While the news that a company is shedding some expensive costs is good for its investors, at least temporarily, the downward economic spiral created by this huge wave of cutbacks is only going to make the consumer spending environment worse, dramatically worse.
How any investor can cheer today’s news, I do not know.
The only bit of news worth smiling about comes from the real estate sector and even that report contains data that can be considered marginally optimistic. According to the national association of realtors, the sales of existing homes jumped 6.5% from November to December. That’s the good news.
The bad news is the median price (half sold for more, half sold for less) dropped by 15% from the same period last year. That means that sales saw an unexpected spike because bargain hunters jumped in to take advantage of depressed prices. It is the largest decline on record, but the books only go back to 1968. Many experts agree it is probably the most severe drop in at least seventy years.
Searching hard for optimism
Even though these figures make it hard to be optimistic, I will give you one bone to chew on. Last month’s unexpected sales increase reduced the inventory of homes on the market. As supply begins to tighten, prices will naturally rise. If the increasing sales figures is a trend, we may be out of this mess sooner than we thought.
The big variable looking forward is what happens as the unemployment figures soar. As we approach 8% or 9% unemployment (I will not even mention double-digit percentages), a lot of Americans will be forced to sell their homes. That will put more inventory into the market and force prices even lower. It will create the downward spiral that so many economists have been calling for.
Even Toll Brothers (NYSE:TOL) with its recently announced 3.99% mortgage will not be able to entice many homebuyers after they hear the news their property could be worth 10% or even 15% less this time next year. Even if it is a smart move, fear is ruling the market.
For investors, this is a good time to ensure your portfolio is adequately protected. Even with the negative news in the market, there are plenty of strategies you can use to insure against further declines in the equity and real estate markets.
Smart options investing is a great choice right now. A lot of savvy traders use options as a portfolio counterweight. I outlined a couple of plays over the last month. So far, both are producing hefty double-digit gains.
For real estate investors with a long-term horizon, there has not been a better market since the Great Depression. Unlike companies that can go bankrupt and disappear overnight, a piece of property will never disappear.
There is not much to smile about these days, but it is important to remember there are still plenty of investors buying, consumers are still shopping and the market will rebound. Now is the time to prepare for the future.
Next Article: Obamanomics road music… and which TFN stem cell pick went up 69% since Jan. 12
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