The Smart Way to Play the Housing Market

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For years, the housing market has been a wasteland of thwarted hopes and dreams. Countless times, both homeowners and investors in housing-related stocks have looked for a bottom in home prices, only to discover that the bear market in housing had further to run.

What's bad news for current homeowners, however, has been great news for those looking to get into housing. Patient would-be buyers have been rewarded with more attractive prices and lower mortgage rates to boot.

Still, the question on everyone's mind is whether housing has further to fall or has already hit bottom. Finding the right answer could mean cashing in on a once-in-a-lifetime opportunity -- or taking on larger losses.


The right move for housing
In this month's brand-new issue of the Rule Your Retirement newsletter, which is available this afternoon at 4 p.m. EDT, you'll find an in-depth look at the current state of the housing industry. Motley Fool financial planner and mutual fund specialist Amanda Kish looks at housing from several angles to come up with conclusions about the best opportunities for homeowners, potential homebuyers, and investors.

Using her mutual fund expertise, Amanda first looks at professional money managers and where they're putting money to work. From Oracle of Omaha Warren Buffett to several fund managers that focus exclusively on real estate investments, Amanda finds that many investors have been betting on a recovery for some time.

Is now the time?
The challenge, though, has been timing. The number of homes with a mortgage that is now "underwater" -- worth less than the amount outstanding on the loan -- has steadily climbed to 31%. Yet the numbers vary greatly from place to place, with more than 70% of homes in the Las Vegas area underwater compared to much lower percentages in rural areas that largely missed out on the housing boom in the first place.

Major mortgage lenders Bank of America (NYS: BAC) , Wells Fargo (NYS: WFC) , and JPMorgan Chase have started offering incentives to join short-sale programs. As a result, more homes are avoiding the lengthy foreclosure process, potentially clearing the backlog of underwater homes more quickly than would otherwise happen. But these programs will still take time to have a big impact on the overall market.

One sign, though, that now may be the time to buy homes comes from investment activity from homebuilders. Beazer Homes (NYS: BZH) , Lennar, and Toll Brothers (NYS: TOL) have all created trusts or separate divisions to buy up foreclosures, fix them up, and rent them out. With the help of hedge funds and other institutional investors, homebuilders obviously believe that certain markets have potential to produce profits this way -- especially as Fannie Mae makes it easier to do bulk purchases of foreclosed properties.

The rate game
One thing that's indisputable, though, is that mortgage rates haven't been lower in decades. That's supporting the housing market, but it's also having a big impact on mortgage REITs that own residential mortgage-backed securities. The longer rates stay low, the longer Annaly Capital (NYS: NLY) and similar mortgage REITs can stay profitable and maintain relatively wide interest spreads. But if refinancing activity gets easier as banks start to clear old loans off their books, then Annaly and its peers could get hurt.

In the new issue of Rule Your Retirement, Amanda points to other REITs outside the mortgage industry that could benefit from increased housing activity. What's essential, though, is weeding out high-cost funds that take away too much profit potential. As alternatives, Amanda points to several funds that meet her standards for reasonable costs and good track records.

Make money in housing
How you should play the housing market depends on where you currently stand. But no matter whether you own or are looking to buy, you'll get helpful advice in this month's Rule Your Retirement. Best of all, you can get free access to the entire new issue through a 30-day trial subscription, letting you discover all the information, tools, and other resources that the newsletter offers.

Investing in a home is one of the biggest financial decisions you'll ever make. You owe it to yourself to get the best advice you can find. Let Rule Your Retirement help you take the first step toward making a smart decision.

Making a smart homebuying decision is just one element of a successful long-term financial plan. As you plan your financial future, you won't want to miss this report revealing theshocking truth about your retirement. Take your chance to grab your free copy of thiscan't-miss reporttoday.

At the time this article was published Fool contributor Dan Caplinger is a five-year homeowner. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Annaly Capital Management, Bank of America, Wells Fargo, and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Wells Fargo and Annaly Capital Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy knows there's no place like home.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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