New Home Sales & Contrarian Thought

A: The Census Bureau reported sales at an annual rate of 1.08 million homes in February, down 10.5 percent from the revised rate of 1.21 million in January. The report also showed a drop compared to a year earlier in the median price of a new home -- the level at which half of homes sell for more and half sell for less. In February the median price was $230,400, down $6,900, or 3 percent from February 2005. Story.

If you read my blog this report SHOULD NOT be any surprise at all! In fact, I'm the only broker around that criticizes good housing reports as being misleading because of its lagging nature. Check my post yesterday "Housing Market Like Bull" and you'll see my note at the bottom.

I have been reporting for months now that the NYC housing market has been soft, with OH activity low, more inventory coming to the market, but prices still high. This would explain the drop in the # of sales as less buyers are pressured to buy right now until sellers start dropping their prices to current market value.

This report today will be twisted and turned by the media in every conceivable way. Expect articles on the bursting bubble coming true reports from experts and real estate professionals doing a 'see I told you so' skit on their blogs. This is NOTHING NEW! After 5 years of incredible growth it is only natural that the housing market cools off as lending rates inch higher and inventory grows.

For some reason the psychology of the general public is NOT to buy in a cooling housing market; as opposed to bidding over ask in a very HOT housing market where buyers scramble to get a property no matter what the cost. So I decided to introduce to you the religion of Contrarian Thought when it comes to investing which can be applied to most tradable markets.

Contrarian Investing: Contrarian investing is an investment strategy that seeks out securities, companies, or industries that are currently out of favor with the investing community. Contrarian investors may search out undervalued stocks, turnaround candidates, or cyclical companies nearing the bottom of a trough. Contrarian investors tend to do the opposite of what the majority of investors are doing. *This can also be applied to housing!

Think of it this way. Would you rather buy Google stock (NASDAQ: GOOG) at $445/share when all the news is good and all the charts show a clear upward trend OR would you rather buy GOOG at $330 after it corrected over 100 points with news turning negative with the recent downslide. Me personally, I'm starting a position AFTER the downfall at a price around $350. If it goes down more, I'll buy a little more (Dollar Cost Averaging). When the stock turns around and gets back in favor again, I will be the proud owner of shares at a lower price as I bought in when everyone else was on the sidelines.

Now apply this to housing and HEED my advice! AS THE HOUSING MARKET CONTINUES TO COOL BUYERS SHOULD GET EVEN MORE INTERESTED IN MAKING A PLAY AND TAKE ADVANTAGE OF A DEAL WHEN IT PRESENTS ITSELF. Case in point: I bought my apartment in the UES 2 months AFTER September 11th when housing was the last thing on most people's minds. Contrarian investing strategy should be used by those with longer term goals and who can ride out any short term volatility. After all, if you are forced to sell it will be very hard to get top dollar.

The housing reports that will be coming out over the next few months will continue to be on the flat to negative side which will result in a flat to down housing market (with rates rising too). Buyers should be SAVVY and have their EYES OPEN in these types of times should a deal you cannot refuse present itself. Trust me it will. While no one knows what the longer term future of housing will bring, we do know that real estate will always be a favorable investment because:

1. Everyone needs a place to live
2. Owning forces you to save money by building equity
3. Hedges your portfolio against other investments
4. Tax benefits cannot be matched by other Capital investments
5. Housing is cyclical and tends to have longer boom cycles and shorter bust cycles.

~ At Long Last, A New Home Sale Slump

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