Real Estate Rebound? Weak Housing Data Hides Seeds of Hope, Analyst Says

Texas is an example of an area with a strong economic base that is not restricted in terms of housing supply, so Boud does not see the Lone Star State as a prime investment opportunity. He sees downward pressure in the near-term continuing in Phoenix and Las Vegas, and says that places like Salt Lake City and Denver “entered the down cycle a little bit later than most and will be a little bit slower coming back.” He cited Sacramento as having poor prospects because its economy is so tied to California’s government, which is expected to shed jobs for some time to come.

The most distressed housing markets like Las Vegas, where it is reported that a majority of homes are now bought with cash, the foreclosure market presents a business opportunity. “What we’re seeing is a lot of investors, those who are relatively wealthy, purchasing homes at very low prices and putting renters in them,” says Boud. “The rental rate is higher than the mortgage rate, so investors can be in the black right way.” Boud says buying foreclosed properties and renting them for five years is “a viable business plan” for those willing to be a landlord, and it also helps the economy by reducing the supply of distressed homes.

Aside from short-term investing opportunities, Boud is most enthusiastic about the long-term, saying, “There are drivers in place that can create an economic cycle such as we have never seen.” Just as the world has seen an industrial age and an information age, the next wave will be an energy age, he says, arguing that energy-efficient housing can lead the way. Boud says there will be a very large multiplier effect if we build homes with both energy conservation features–solar panels, high-efficiency HVAC systems and LED lighting –and energy-producing capacity through fuel cells and wind turbines that produce electricity. Boud cites the automotive industry as an analogy. When energy efficiency standards impelled car companies to produce a new generation of cars getting 40 to 50 mpg rather than 15 to 20 mpg, there was a surge in demand for the new cars, which had an enormous impact throughout the economy. If these changes come to housing, “everyone gets a new home or refits their old ones,” Boud says.

In the policy arena, Boud panned ideas the administration is considering to facilitate homeowners with government-backed mortgages refinancing at today’s lower rates. “That is just fiddling with the system,” and will lead to higher taxes or a larger burden on the banks. “We’ve already had a massive failure of banks. Why increase their burden? Why increase taxes, especially when mortgage rates are at 3.5%?” he said.

“The thing that loosens mortgage lending is economic growth, not government policy. The best thing the government can do is get out of the way and let markets take care of themselves,” Boud says, citing the tax credit for first-time buyers in 2010 as an example of a failed government program. “It created a false upward trend. All we were doing is borrowing demand from 2011. And it cost us tax money and subsidies.”