Monday, July 11, 2005

The Big Picture: DayTrading Florida Real Estate

The Big Picture: DayTrading Florida Real Estate

As Barry points out the real estate market seems crazy. The reality is that prices are not jumping 30% or more in a day but long term owners are selling without adequate market knowledge. They simply do not understand how big the market move has been over the past two or three years.

Investors who are aware of price increases in an area can often buy based on old comps and tax values. In other words a property that has appreciated 10% for three years might be bought by an investor at the three year ago price and then resold quickly at 30% gains.

It is important for all investors to understand that real estate prices and price to earnings ratios are both inversely related to long term interest rates. An increase in long term interest rates would hurt real estate and stock prices. The short-term rate increases have had no visible effect.

The bottom line is that world wide productivity is holding down the rate of inflation which in turn is keeping long rates low. This makes for a good housing market and a good stock market. Many a hedge fund and millions of investors have been caught under-weighted in stocks. The market keeps climbing. Even the London bombs did not push this market down for long.

A fundamental rule of good investing is "Don't fight the tape"! This market is going up. Don't fight it. Selling short just because a stock or an index has gone up is a poor reason. A lot of folks still don't get that the earnings yield on stocks is higher than bond yields. A lot of folks do not understand why the dollar is now appreciating against the Euro. The link between all of these thoughts is that money flows to where it is paid the most. Stocks are paying more than bonds so money is flowing to stocks. Recent increases in US rates mean the US is paying more interest than the Europeans; money is now flowing back to US dollars.

If you can find a piece of real estate at a 25% to current value, buy it. Also keep in mind that the average stock is at a 25% discount to current value.