This article first appeared on Minyanville.

A piece in this weekend’s New York Times contends that the golden era of real estate is over. The author, David Streitfeld, argues that for the foreseeable future (and possibly forever), a home will simply be four walls and a roof, ceasing to be the lucrative financial investment it’s been since the end of World War II. The premise is mildly compelling, particularly given the dour housing data of the past couple months. But to argue that real estate as an asset class is dead is to grossly misunderstand not only housing, but the nature of human progress itself.

After five years of a housing depression that brought the entire global financial system to its knees, it’s easy to get behind the argument that housing is dead: Shadow inventory is looming, government incentives are running their course, the employment outlook is cloudy at best, and people are thinking twice about plunking down a life’s savings for the privilege of 30-years of indebtedness.

Moreover, according to Streitfeld and the housing economists he quotes, a shockingly large portion of Americans’ disposable income over the past several decades was generated through real estate appreciation. Not only did banks like Wells Fargo (WFC) and JPMorgan Chase (JPM) get rich off originating, packaging, and selling mortgages, but cruise operators like Carnival Corp (CCL) and Royal Caribbean (RCL) and gadget-makers like Apple (AAPL) and Research in Motion (RIMM) cashed in as homeowners cashed out.

And while all this is true, to say that “real estate’s gold rush seems gone for good,” is to lump Silicon Valley in with the Wasatch Mountains, Daytona Beach with Huntington Beach. Articles like Streitfeld’s make for interesting chatter at the water cooler and cocktail parties where being bearish on housing is all the rage, but they miss the larger point that progress and development are ongoing, and there are good long-term real estate investments out there if you know where to look — even if you’re just looking for a place to raise your family.

The bearish thesis breaks down when you look at what it means to actually buy a house, and what factors effect the future price of that particular home. Buying a house isn’t the same as investing in the “housing market.” Not even close. The argument relies on the naive, yet now-popular belief that the same factors that make taking a flier on a Vegas condo risky must, by extension, also make buying a starter home in Austin, Texas, a dicey proposition.

Rather, buying a home is investing in a neighborhood, a community which may or may not be squarely in the path of demographic patterns that were set in motion well before our country had ever heard the term “subprime.” If done right, a happy medium can be found between finding a place you want to live and settling down in what may even turn out to be a good investment.

Population shifts evolve over decades, not years, and are based on fundamental factors that run deeper than short-term blips in the national, or even regional economy. Demographic movements, not short-sighted speculation, are behind the creation of real estate wealth in the long run. These shifts explain why rural towns with stagnant populations won’t see appreciation for decades (if ever), while regions with expanding job markets and a growing population are ripe for smart investment (yes, such areas exist, even now).

At the same time, established, snobbish communities of aging baby boomers may see home prices flatline for years, while buyers in many gritty, neighborhoods on the fringe currently far outweigh sellers. In these markets, prices are creeping back up based on fundamentals, not government crutches.

So as stubborn housing bears drone on, spouting their frail generalities, the precious few of us with vision to see beyond next quarter’s GDP data will be the landlords of the future.

This post first appeared in the June edition of: Cirios Trends: In Search of Real Estate Opportunities.

Toyota Gets Long Electric Cars
(San Francisco Chronicle)

Toyota Corp. is plunking down $50 million to help Tesla Motors restart the recently shuttered Nummi auto plant in Fremont. Tesla is hiring 50 staff per month to get the plant churning out its electric cars and expects to manufacture 20,000 vehicles per year. Nummi has a storied past, having been closed and reopened two times prior to its most recent resuscitation. For Toyota, while the strategic investment could end up paying off, the company is also working to repair its tattered image. In a separate release, the company issued its profuse thanks to British Petroleum, which, in a most benevolent display of corporate camaraderie, supplanted Toyota as the most hated foreign company in America.

(Read more here: http://tinyurl.com/ciriostrendsjune1)

Wells Unloading Commercial Loans
(Bloomberg Business Week)

Wells Fargo, the biggest commercial real estate lender in the US, is looking to sell around $1 billion in distressed commercial real estate loans and assets. The majority of the loans Wells has on the block were inherited from Wachovia, the Charlotte-based bank Wells swallowed up in October 2008. Buyers of such things are getting more aggressive on pricing, as a consensus is building that while not out of the woods by any stretch, downside risk for commercial real estate is limited. That, or investors are feeling the pressure to put money to work and rationalizing away the latent risks which remain in a market that is anything but healed: Foresight Analytics estimates that US financial firms hold $185 billion in distressed loans.

(Read more here: http://tinyurl.com/ciriostrendsjune2)

San Francisco Courts Builders
(San Francisco Business Times)

In a move aimed at jumpstarting new construction in San Francisco, Mayor Gavin Newsom is allowing developers to defer impact fees regularly paid when construction begins. Under the new legislation, up to 80% of the impact fees can be paid just prior to completion, which the city hopes will encourage builders to start projects otherwise tabled or delayed. Newsom estimates that the change could generate 4,800 construction-related jobs and spur almost $900 million in spending.

(Read more here: http://tinyurl.com/ciriostrendsjune3)

Brisbane Boomtown? Bullocks.
(San Francisco Business Times)

The sleepy town of Brisbane, best known for being the most enigmatic city in the Bay Area, could soon become a hotbed of development. The city wants to redevelop a 660-acre swath of capped landfill and rotting train yards, known as the Baylands. Universal Paragon, a San Francisco-based developer, is proposing a project consisting of 4,500 homes, 6 million square feet of office space and 25 acres of solar arrays. If approved, the plan would triple Brisbane’s population over the next 30 years and transform the town into, well, something.

(Read more here: http://tinyurl.com/ciriostrendsjune4 )

This post first appeared in the SPECIAL EDITION: Cirios Trends: A Decade in Flux

The books are officially closed on a decade which will be remembered for an historic real estate boom in the United States that busted in spectacular fashion, nearly taking the entire world financial system down with it.

Of course, the real story is a touch more complicated: Our housing bust was merely the most glaring crack in a global economy that grew far too dependent on cheap debt, where flows of money around the world magnetized to the hot asset, blowing bubbles first in stocks, then real estate, then commodities.

During each subsequent bust, governments rushed to the aide of markets, stitching them up with a patchwork of looser regulations, low interest rates and promises it would never happen again.

Late in 2008, the collapse of the credit markets culminated in the failure of some of this country’s most storied financial institutions. When the dust settled, Bear Stearns, Lehman Brothers, Merrill Lynch,
Washington Mutual, Wachovia, Fannie Mae, Freddie Mac, AIG, Countrywide and a host of smaller, lesser known entities had either gone bust or been bought for a song by stronger, better capitalized firms.

Some simply melted into this or that government agency, while many members of our financial complex survived only with historic government aide. Citigroup, Bank of America, Wells Fargo, JP Morgan Chase, Goldman Sachs, Morgan Stanley, GM and Chrysler are alive today thanks to massive taxpayer-funded bailouts.

But enough looking behind us; historians and journalists will be employed for decades slicing and dicing this most turbulent of decades.

Surveying the horizon, the primary fear among economists, investors and ordinary Americans is that the inflationary effects of pumping trillions of dollars into an economy must eventually come home to roost.

To be sure, there are those who remain firmly in the camp that believes the more pressing concern is inflation’s less-well understood counterpart, deflation. But even the most ardent deflationists believe theirs is a debate that is more accurately painted as one of time horizons, rather than absolutes.

The US dollar is in the crosshairs of this philosophic, as well as very practical debate. The greenback’s standing as the global reserve currency has been thrown into question as investors around the world scratch their collective heads and try to figure out how we’ll ever repay our staggering, ever-growing debt.

And now, as our economy appears to be slowly healing, the Federal Reserve faces the unenviable task of withdrawing its generous stimulus. In March, the Fed plans to scale back its purchases of mortgage backed securities, spooking more than a few market participants.

The fear, particularly for the housing market, is that any Fed pullback will push up interest rates.

Higher interest rates translate into lower purchasing power for buyers, curtailing the steady stream of homebuying demand that, coupled with ongoing foreclosure moratoria, has propped up prices in recent months.

We kick off 2010 with mortgage rates approaching the all-time lows set last spring. Sure, they could always go lower, but the smart money is betting it’s just a matter of time before rising prices force regulators to ease their foot off the monetary accelerator. Higher mortgage rates are likely on the horizon.

So as we begin the first true test of our nascent economic recovery, Cirios would like to take you through a bit of history. We’ll look first at the macroeconomic picture as it relates to home prices, inflation and interest rates. Next we’ll examine a few California real estate markets illustrative of the localized trends masked by most broad economic measures.

But first, a word of caution: As Mark Twain’s oft-cited saying goes, “History doesn’t repeat itself, but it often rhymes.”

It goes without saying that the financial upheaval of the past 24 months has been, in a word, unique. There is no historical analogue, no matter how neatly we try to jam this experience into some mold cast in the 1930s, 1970s or 1980s. By extension, any conclusions drawn from this historic perspective should be taken with a very large grain of salt.

Nevertheless, understanding where we stand and how we got here is essential to understanding where we’re headed. And understanding where we’re headed is essential to finding and taking advantage of the plentiful investment opportunities the previous decade’s turmoil has created.

NEXT >>

Things are looking up for US homebuilders — or at least they think so.

The National Association of Homebuilders/Wells Fargo Housing Market Index registered a 17 this month, its highest level since September of last year. The measure jumped from 15 in June, after hitting a low this past March of a measly 9. Anything below 50 is an indication builders are pessimistic, so we still have a long way to go before optimism reigns in the world of building houses.

NAHB Chairman Joe Robson, while encouraged by the current environment, was sober about the reality for a meaningful rebound in housing:

A true recovery in the housing market and overall economy cannot take place until the continuing foreclosure crisis is abated and a decent flow of credit is restored to housing production,” Robson said.

Meanwhile, the stalled jobs market is a major concern to builders and potential home buyers alike.

Indeed. Buying activity is certainly strong in some markets, but its unclear how long this wave of buying can last, given the weak economic backdrop. Foreclosure moratoria can only keep supply off the market for so long.

Homebuilders remain cautious, as rising mortgage rates and persistent unemployment weighed on hopes for a speedy recovery in the battered housing market. Today’s National Association of Home Builders/Wells Fargo index of builder confidence fell to 15, down from 16 last month, according to Bloomberg. Analysts expected the reading to come in at 17.

The NAHB chief economist, David Crowe said “The housing market continues to bump along trying to find a bottom. Builders are taking their cue from consumers, who remain uncertain about the economy and their own situation.”

As discussed at length here at Cirios, buyers should largely ignore calls in the media and real estate industry for a housing market “bottom.” Markets do not bottom at once, so a bottom in nationwide housing data will mean little for individual markets. At Cirios we do street-level, house by house analysis to identify micro-trends within local housing markets — have a question about your market?

Contact us today for a free consultation!