Yes, the Housing Market Has Rarely Looked Better

By JAMES B. STEWART

Passing through the Fort Myers, Fla., airport a few weeks ago, I noticed people eagerly signing up for a free bus tour of foreclosed real estate—with all properties offering water views. During the ride to my hotel, the young driver volunteered that he had just bought his first house, paying $65,000 for a foreclosed property in nearby Cape Coral that last sold for over $250,000. He said he had never expected to be able to buy anything on a driver's salary, let alone something that nice.

Last week, Standard & Poor's reported that its S&P/Case-Shiller U.S. National Home Price index of real-estate values increased this past quarter over the first quarter of 2009, the first quarter-on-quarter increase in three years. Its index of 20 major cities also rose for the three months ended June 30 over the three months ended May 31, with only hard-hit Detroit and Las Vegas experiencing declines. The week before that, the National Association of Realtors reported that sales volume of existing homes was up 7.2% in July from June.

In short, the data suggest that real-estate prices hit a bottom some time during the second quarter, and have now begun to rise. There's no way to be certain that this marks the end of the long, painful correction that followed the real-estate bubble, but clearly prices are no longer in free-fall. That means if you've been sitting on the fence, it's time to act.

Ordinarily I'd never try to time the real-estate market, but I can understand why buyers have been cautious. Few want to buy in down markets, just as stock buyers avoid bear markets. And for most people, of course, buying a house is a much bigger decision than buying a stock. But with real-estate prices nationally now down about 30% from their 2006 peak and showing signs of turning up, the prices aren't likely to go much lower. Every real-estate market is local, and so there may be a few exceptions. Overall, though, I can't imagine a better time to buy than now.

In addition to bargain prices, buyers also should find plenty of homes to choose from. The inventory of unsold homes was 4.09 million units in July, up 7.3% from June, according to the National Association of Realtors. And mortgage rates this week were at a two-month low of close to 5%, according to Zillow. Even the stricter appraisal process is working to the advantage of buyers. Appraisals are coming in far lower than most sellers have been expecting, forcing them to face the new reality of sharply lower prices. And with stricter standards, lenders aren't going to let buyers borrow more than they can afford, which protects buyers and helps to keep prices down.

Unless you're really prepared to accept the demands (and headaches) of being a landlord, I don't recommend direct ownership of real estate as an investment. The days of buyers lining up to flip Miami Beach and Las Vegas condos are mercifully gone.

There are much easier ways to make money in real estate, such as real-estate investment trusts or buying shares in home builders and other housing-related businesses (such as Home Depot). Historically, the mean rate of return on real estate has been around 3%, according to research from Yale economist Robert Shiller, who co-developed the Case-Shiller index. Shares in REITs and other stocks have often done much better.

But there's a good reason homeownership has been such a central part of the American dream. It delivers security, pride of ownership, a sense of community and decent investment returns as a bonus. I felt glad for my driver in Florida. He represents the other side of the foreclosure crisis. For every hardship story, and no doubt there are many, others are realizing their dreams of home ownership and getting what may well turn out to be the deals of their lives.

James B. Stewart, a columnist for SmartMoney magazine and SmartMoney.com, writes weekly about his personal investing strategy. Unlike Dow Jones reporters, he may have positions in the stocks he writes about.

TEXAS' EXISTING HOME SALES DROP, PRICES RISE

TEXAS (Real Estate Center, CNNMoney.com) – A total of 22,511 existing homes were sold in Texas last month, a 4.8 percent decline from July 2008, according to MLS data compiled by the Real Estate Center at Texas A&M University. The median price increased 0.6 percent to $153,800 during the same period, and the state finished the month with a 7.4-month inventory of existing homes.

Here is how select Texas cities fared in July (data current as of Aug. 28, 2009):

	Sales	Change from Last Year	Median Price	Change from Last Year	Months' Inventory
Amarillo	254	down 21.6%	$124,600	up 1.2%	7.2
Austin	2,288	down 0.2%	$189,700	down 0.6%	7
College Station–Bryan	304	down 15.1%	$151,000	down 2.3%	6.8
Dallas	4,815	down 6%	$164,800	up 0.8%	6.5
El Paso	478	down 4.8%	$135,200	down 2.4%	9.1
Fort Worth	840	down 12.3%	$118,700	down 1.1%	6.6
Harlingen	78	up 20%	$95,000	up 13.6%	28.7
Houston	6,393	down 4.8%	$161,900	up 1.3%	6.8
Killeen–Fort Hood	257	down 6.2%	$124,800	down 0.9%	10
Laredo	91	up 11%	$122,800	up 2.3%	9
Lubbock	348	up 0.9%	$110,300	up 0.3%	5.5
Palestine	21	down 16%	$102,500	down 2.4%	10.1
San Angelo	125	down 5.3 %	$121,700	up 10.6%	5.6
San Antonio	2,040	up 7.9%	$156,900	up 2.3%	8.4
Waco	213	down 14.5%	$114,600	down 1.4%	8.4

Additional home sales data for these and other major Texas cities are available on the Center’s website.

Nationally, sales of existing single-family homes last month were up 5 percent from July 2008, according to the National Association of Realtors.

TEXAS BANKS FAIRING BETTER THAN OTHERS

AUSTIN (Austin American Statesman) – Texas banks are in better condition than others across the nation, according to a new report from Sheshunoff & Co. Investment Banking, an Austin-based financial industry consulting firm.

Compared with the national median on several key measures of bank health, Texas institutions have been more profitable and had stronger asset quality and healthier levels of capital, said John Blaylock, associate director of Sheshunoff. Those higher levels of capital, combined with a lower level of bad assets than banks nationwide, have given Lone Star banks more money to absorb losses in this recession.

The report said Texas banks are well diversified, doing significant business in energy, health care and agriculture, all of which have fared better than most other sectors.

Texas banks’ profitability declined from the first quarter to 0.69 percent in the second but was still higher than the national average of 0.49 percent.

Profitability levels have been rising for Austin-based banks since third quarter 2008 and hit 0.74 percent in the second quarter of this year. Area banks have been buoyed by the economic activity that revolves around the University of Texas and the state government.

Banks in the Dallas–Fort Worth and Houston areas had returns on average assets below the national median.