2014 outlook: safe as houses

Once again, I must apologize for the lack of blog updates recently. I’ve been on the road visiting company managements almost continuously for the past several months–first booming Texas, then booming China, then New Jersey and Long Island, then Texas again, and most recently Phoenix. After meeting with dozens of executives all over the country (and out of it, too) in all sorts of different industries–from retail to manufacturing to tech to finance–I was not at all surprised to see this past Friday’s big revision in third quarter GDP.

Almost to a person, corporate managers seem to be quite upbeat these days. So much so that I’m about to say something I didn’t think I would say for a long, long time: believe it or not, real estate is probably a good investment again.

As Friday’s numbers show, the US economy is steadily improving.  Third quarter GDP was revised to 4.1 percent, vs the earlier estimate of 3.6 percent and 2.5 percent growth in 2Q. Moreover, the Fed remains determined to increase homebuilding by boosting home prices, so short duration interest will be held at zero for years–deficits be damned. In other words, we’re living in a borrower’s paradise and a saver’s purgatory. And, as an investor, you might as well join the debt-fueled party.

With home prices still depressed in most regions and the Fed keeping rates at or near zero for the foreseeable future, the real estate market is primed for the same kind of rally stocks saw in 2013. The reason for this is simple: the housing market is in a win-win situation.

On the one hand, if the economy falters again, Uncle Sam will almost certainly continue or even reaccelerate the qualitative easing program. That will keep rates low and mortgages affordable. On the other hand, if the economy continues to improve, QE will taper but housing prices will appreciate, perhaps a great deal. Either way, homebuyers, homeowners, and home speculators will do well while savers, who are often the elderly, will continue to subsidize the rally.

Historians and economists will debate the effectiveness (and fairness) of these policies for decades. But Mr. Benanke and company concluded in 2008 that job growth and economic growth depend on home price inflation. Incoming Fed chairman Janet Yellen seems to agree. So if you want to make your money grow in 2014, buy a house. If you’ve got enough money and you want to make it grow even more, buy two or three. And Merry Christmas!


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