By:
Sean McAlister

In a recent report for homebuyers, all signs suggest that their time is now. In many parts of the country, sellers have finally gotten the message by now, and homebuyers must take the hint. Real estate experts say a switch in the psychology of the housing market has helped buyers to see the silver lining around the market's storm clouds and usher in the fine shopping weather. Two years of stormy real estate markets appear to have created an ideal climate for bargain-minded house hunters who know where to look.

David Lereah, the chief economist for the National Association of Realtors, said that "we are now in a solid buyer's market," also added "It has been a seller's market for many years, but now we are seeing people across the country making deals and bringing prices down."

"What happened was, investors pulled out in droves, and the housing markets went dead," comments Lereah, "When the investors stopped buying, regular buyers got scared." A loss of confidence on the part of real estate investors triggered the psychological switch, he says.

"Now they are making deals," Lereah says, speaking about the dearth of buyers, sellers eventually realized they would have to make concessions on their sale prices.

Mickey Levy, the chief economist for the Bank of America, points out that the market is also suffering from an oversupply of homes created by an overzealous home-builder community. If the downturn was simply a product of a short-term panic, things would likely be back to normal by now.

He says that "While demand is picking up, there is still that large supply overhang," and added "And while the numbers are starting to come up for sales, prices still have a bit to drift before they start rebounding." With a listless housing market, savvy buyers in many markets across the U.S. are finding themselves in the best position they have been in for nearly a decade when it comes to price negotiations.

Levy does warn, however, that not all sellers are in a dealing mood. He also said that "Even though existing-home prices are basically flattish on a national level, I would issue a bit of caution with that number," following up with "Housing is inherently a local market, and national numbers are notorious for not offering an accurate snapshot of what is happening in a particular market.

"On the whole, Levy says to expect prices, on average, to drift slightly lower as a function of clearing out excess inventory. And inventory is the key. So, while prices in Southern California and parts of Florida may be down significantly, other markets may still be enjoying healthy price gains.

SOMETIMES VOLATILITY FEELS good, as demonstrated by Friday's market rally, but by its very nature, what volatility giveth it will also taketh away.

The latest gains, fueled by the Federal Reserve's surprise move to knock a half percentage point off the discount rate that it charges banks for loans, are a welcome relief for the ravaged market. Enjoy it while it lasts. The Chicago Board Options Exchange Volatility Index, or VIX, also known as the "investor fear gauge," tumbled early Friday to near 25 before bouncing back to 29.99 by the end of trading, still miles above its 52-week low of 9.39. There's little reason to think volatility will abate anytime soon.

Tobias Levkovich, Citigroup's chief U.S. equity strategist, wrote Thursday that although investors like to think a fed-funds rate cut will dampen volatility, he believes it would only be helpful if economic conditions don't break down further.

"As a reminder, the surprise Fed rate cut in January 2001 did little to turn the tide, even though it provided some very short-term relief, since the capital spending driven economy faltered and earnings collapsed," Levkovich wrote. "Thus, a Fed rate cut without some willingness to lend money to small business and consumers would equally end up being in vain." The rate-setting Federal Open Market Committee is scheduled to meet next on Sept. 18.

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And as horrible as August has been, historically September is the worst time of the year for average monthly performance. It would be entirely in this market's character to follow Friday's euphoria with another fire sale next week or next month.

The Dow was down 10%, albeit briefly, on Thursday from its all-time closing high of 14000 set on July 19. And even with Friday's rally the industrials are off 1,000 points in a month. In light of recent extreme volatility the Dow appears likely to re-test those lows again soon.

Be fearful when others are greedy, Warren Buffett has said, and greedy when others are fearful. The next time the Dow flirts with 12600, the dreaded, official 10% correction, there are sectors to grab greedily and some of which to remain fearful. (See "Dogs and Diamonds of the Dow" sidebar.)

Firmly on the buy side are some of the Dow's technology stocks. "They're just being indiscriminately sold now and are creating some real bargains," says Art Hogan, chief market strategist at Jefferies & Co.
As growth stocks, tech tends to outperform later in the market up-cycle and this one is rapidly approaching six years. Furthermore, tech stocks with diversified global revenue streams — meaning they're not solely at the mercy of the U.S. economy and consumer — offer the best bets. Surging demand for PCs helped Dow component Hewlett-Packard (HPQ: 47.15, +1.10, +2.4%) report better-than-expected earnings after Thursday's bell. The company also raised its outlook. Just as important, H-P has robust free cash flow and little debt — key considerations in this tight credit environment. And its forward P/E offers a discount to the broader market.

In much the same vein, Microsoft (MSFT: 28.25, +0.44, +1.6%) trades at a discount to the S&P 500 and has no debt. Intel (INTC: 23.70, +0.60, +2.6%) looks attractively underleveraged, but it's forward P/E offers a premium to the broader market. International Business Machines (IBM: 110.90, +1.21, +1.1%) trades at a deep discount to the market, but carries a lot of debt.

After tech, the most promising stocks are to be found in energy, a key overweight sector at Citigroup. "With powerful cash flow, the energy sector is not likely to be burdened with debt and our proprietary valuation work is very supportive for integrated oil and gas names," Levkovich wrote Thursday.
True, Dow component Exxon Mobil (XOM: 84.14, +3.47, +4.3%) is highly leveraged, but it also generated more than $36 billion in free cash in the trailing 12 months. Meanwhile, it's forward P/E offers discounts of about 20% and 15% to the broader market and its own five-year average, respectively.

On the other side of the ledger are the financials. They stand to continue to sell off despite seemingly attractive valuations. "I'm not a real fan of the financials here," says Ed Yardeni, president and chief investment strategist of Yardeni Research. "I think they're going to continue to be distressed and be a source of unhappy news and I think earnings comparisons are going to be tough."

Sometimes stocks are cheap for a reason, and with so much uncertainty as to where the next subprime landmines lay, the risks appear to outweigh the rewards. Remember, the equity markets, trading on emotion rather than deliberation, are the tail. The credit markets are the dog. That puts Dow components American Express (AXP: 58.89, +0.72, +1.2%), Citigroup (C: 48.81, +1.26, +2.7%) and JP Morgan Chase (JPM: 47.01, +1.54, +3.4%) off the buy-on-the-next-dip list, despite deeply discounted forward P/Es. Insurer American International Group (AIG: 65.96, +2.01, +3.1%) offers financial services, as does conglomerate General Electric (GE: 38.45, +1.25, +3.4%). Be wary there, too.

It takes a steely tolerance for risk to buy when everyone else is selling. But that, of course, is when the best opportunities present themselves. "I think that 12 months from now we'll look at some stock prices that we're seeing quoted these days and say that was really a buying opportunity," says Jefferies' Hogan. "It's just very difficult for the average investors to catch those falling knives."

For most folks, finding ways to keep their money growing, and doing so in a safe way, is a mind-boggling process. Investing in real estate is an option most would take a second glance, considering the way property market values are going up today.

However, a lot of think that the path to success in real estate is in buying a handful of rental properties, leasing them out for 20 or so years, and then retire rich with millions in equity and a large, fat cash flow to sustain you till retirement. That notion is however quite true; in 30 years probably, the mortgages on the properties will have been paid off, the said property will have at least doubled or tripled in value, and the rents will be substantially higher than today.

The only one problem with that notion is that you have bills and financial needs today and while achieving a healthy cash flow in 20 years or so is a nice idea, it still doesn't solve today's cash flow concerns. You need to solve today's cash flow problems before worrying about creating long term wealth. If you are like the average American, probably your biggest concern is security.

That is the main reason why so many people today keep working at jobs that they absolutely don't like; because they can't let go of the security that a regular paycheck gives. By investing in good real estate deals, one has the chance of getting good yields in the future, and putting their hard-earned money on good pieces of property could help increase their savings in the long-term.

Investing in real estate has been a usually safe and respectably good investment choice over the last decades. With the housing and property market booming over the last several years, people have seen wonderful rate of returns in their real estate portfolio.

Because of all this, real estate looks to be a safe, secure investment. We constantly hear stories of people making ridiculous returns on their investments; however, what we don't hear is how many people have lost their shirts playing the same game. Real estate investing can be a terribly risky one unless you are well informed of the market's movement and indicators.

Real Estate as a tangible investment

One main reason why many people prefer to invest in real estate over equity markets is that real estate is tangible. You can touch it. If you own shares of a certain company or startup tech firm, the best that you can get is a quote on your screen. It's like being able to drive to a house and say that you own it. It makes you feel more secure. I feel like I have more control when I can reach out and touch something physical.
Less risks, greater returns in real estate investing.

When done properly, one can achieve greater better returns in real estate than on investing in the stock market, without additional risk. In fact, I would argue that you can achieve better returns with less risk. Try getting insurance on your stock portfolio. It will never happen because insurance companies know that real estate is a much safer investment.

Real estate Isn't rocket science

According to investment experts, the greatest advantage of plunking your cash on real estate investments is that you don't have to be a George Soros to make good money in this field. Whenever you try to make money, say for example, in the stock market, you need to understand the technical and fundamental techniques of yields, net asset values and such.

You need to get a firm grasp of stuff like inventory turnover, daily sales ratios, etc. In real estate, it is a much simpler, uncomplicated process. If you have a good real estate broker and you do have basic understanding of a basic financial sheet, then you are all set. A good real estate broker can help you in dealing with all the aspects of land and property investment.