The Old Question: Real Estate or Equities
A buddy of mine has been getting into buying real estate to use as rentals aggressively over the past year or so. Generally, I tell people that they're better off investing in the market for any number of good reasons (plenty of WSO discussions on it). But, he's something of a special case as he has access to VA loans, which offer fantastic terms, making his choice perfectly reasonable. However, after reading a couple of articles on Bloomberg, it appears that the tide may be changing. First up, we have Bill Gross, giving us some seemingly wise advice:
"Markets are reaching the point of low return and diminishing liquidity," Gross wrote today in his investment outlook for December. "Investors may want to begin to take some chips off the table: raise asset quality, reduce duration, and prepare for at least a halt of asset appreciation engineered upon a false central bank premise of artificial yields, and the trickling down of faux wealth to the working class."
Assuming one agrees with Gross, what is one to do with the chips you've pulled off the table? Well, in the second piece, it looks like the law of unintended consequences has struck again, this time in bubbly real estate appraisals:
Since the housing boom ended, mortgage volume has dropped by two-thirds and home sales are still about 30 percent below the 2005 peak. Meanwhile, the number of licensed and certified appraisers, now about 100,000, has fallen at only half the rate of home sales and much less than the drop in mortgage-origination volume. The result is an oversupply of appraisers, with more of them willing to come up with valuations to make a transaction work.
This combination is why an estimated one in seven appraisals is inflated by as much as 20 percent.
How do you monkeys read the situation? Is now a good time to start pulling money from the market and dropping it into real estate?