Investors have clearly felt the pinch of a capital crunch and slumping U.S. economy. In fact, 60% of real estate investors cite availability of financing as their top concern in 2009 – according to a recent study conducted by Marcus & Millichap and National Real Estate Investor.

The cost and availability of capital remain top concerns for investors as illiquidity in capital markets continues to drag down investment real estate sales. Most respondents are not optimistic that access to capital will improve anytime soon. Nearly 40% of respondents expect debt financing to be more difficult to obtain a year from now, while 37% expect financing to be about the same, and 23% expect it to be easier to obtain.

Refinancing could pose some added challenges to an already cash-strapped market.

Nearly 40% of respondents say they need to refinance at least a portion of their portfolio in the coming year. The greatest hurdles to refinancing cited by respondents are underwriting terms (45%), economic factors (44%), and higher cost of capital (36%).

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The U.S. and world economies are about to suffer through some of the worst recessions in the postwar period. Most measures of economic and financial activity look like they fell off a cliff in September and October, and have been deteriorating at an alarming rate ever since. The United States is now officially in a recession that started in December 2007. Japan and many European countries are in the same boat. At the same time, growth in most emerging markets is faltering. IHS Global Insight now believes that global growth will be in the 0.0 – 0.5% range during 2009, compared with 2.7% in 2008.

1. THE U.S. RECESSION WILL BE ONE OF THE DEEPEST — IF NOT THE DEEPEST — IN THE POSTWAR PERIOD.
   The current downturn is well on its way to becoming the longest in the past six decades. Based on the December IHS Global Insight baseline forecast for the U.S. economy, it will be the fourth deepest in the postwar period (the 1957 recession was the deepest, followed by the contractions of 1973 – 75 and 1981– 82). Nevertheless, given the very negative tone of the incoming data (including the 533,000 drop in November payrolls), the recession could well be the worst in the postwar period. At the same time, the large back-to-back declines in real GDP predicted for the fourth quarter of 2008 and the first quarter of 2009 (down 5.0% and 3.8%, respectively) are the worst since the 1982 recession, and may easily be the worst in more than six decades. Overall, we expect the U.S. economy to shrink at least 1.8% in 2009.
2. THE FEDERAL RESERVE AND OTHER CENTRAL BANKS WILL KEEP CUTTING RATES.
   The race to zero is on! The Fed has already cut the federal funds rate to 1% and is likely to take it all the way to zero by the end of January. Once the overnight rate is at zero, the Fed may have to engage in “quantitative easing” (direct purchases of long-term Treasuries). It is already engaging (massively) in unorthodox measures such as buying commercial paper, mortgage-backed securities, credit card debt, and loans to small businesses, students, and car buyers. On December 4, the European Central bank joined the fray by cutting the overnight rate by 75 basis points (to 2.5%), while the Bank of England cut by 100 basis points (to 2.0%). IHS Global Insight now believes that the ECB and BoE will push rates all the way to 1.0% and 0.5%, respectively—and could cut all the way to zero. Most central banks around the world have followed suit. Notably, on November 26, the People’s Bank of China lowered rates by 108 basis points, the largest cut in 11 years and the fourth cut since mid-September.

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Speaking in general terms, we may be far from a bottom in the national real estate housing market. Perhaps the government bailout plans and lower interest rates will help, but I remain skeptical that we will reach a bottom by the second quarter of 2009 - today’s general consensus.  Why?

The Mortgage Bankers Association reported that 10% of American homeowners are either behind on payments or in foreclosure. This data has been tracked for over 29 years, and we are at an all-time high, as you might have guessed.

These high numbers suggest that loans to sub-prime borrowers, who perhaps shouldn’t have gained approval, are only part of the problem. The sub-prime market got the ball rolling, but now unemployment is making that ball accelerate at a frightening speed.

The U.S. economy lost 1.55 million jobs in the last 6 months. That’s the biggest loss of jobs in 30 years. To put this in a little more perspective, 1.55 million is nearly the number of jobs that were lost in the 2001 recession including the months following September 11, 2001 terrorist attacks.

Unfortunately it gets worse.

637,000 people were not counted in the official jobless numbers because they’ve stopped looking for work, effectively removing themselves from the employment pool.

Another 621,000 people have apparently settled for part-time work because they can’t find full-time work. These people count as employed, but it’s pretty obvious they will not be contributing much to the GDP by way of spending.

Where’s the bottom?

We will reach a bottom of the housing market once we have Stabilization.

Stabilization means the end is in sight. The day will come when the rate of layoffs will slow down and corporate cost-cutting has been done.  However, the latest employment numbers suggest we are a long ways off.

What should you do?

As mentioned in our blog post, "Is it a Good Time to Invest in Real Estate?", there is an abundance of good real estate deals all over the country today. With real estate values and mortgage rates at historic lows, finding property with neutral or positive cash flow is not difficult to do.

Again, be sure to do your research and buy in markets with the strongest economic fundamentals, then hold on for the long term in order to gain the highest returns.

As we watch the U.S. economy head for its deepest and longest recession since World War II, we ask ourselves if this is a good time to invest in real estate? Especially now as mounting job losses take their toll on consumer confidence and spending.

Last month, U.S. employers cut payrolls at the fastest pace in 34 years as the unemployment rate rose to 6.7%, the highest level since 1993. The 533,000 drop brought cumulative job losses to 1.91 million this year according to the Labor Department in Washington.

Keep in mind that the actual U.S. unemployment rate may be as high as 11% to 13% since the rate published by the Labor Department excludes people who have been unemployed longer than 12 consecutive months.

Additionally, U.S. stocks fell for the fourth time in five weeks as the worsening job market added to concern the recession is deepening.

John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, said the jobs report suggests that the economy shrank at annual rate of 5 percent in the final three months of the year. That would be the biggest contraction since the first quarter of 1982.

So, with all the negative news about our economy is this a good time to invest in real estate?

The short answer is an absolute YES!  Why?

The answer was clearly stated by Sir John Templeton, the legendary investor and mutual fund pioneer.  He said, "The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell."

There is an abundance of good real estate deals all over the country today. With real estate values and mortgage rates at historic lows, finding property with neutral or positive cash flow is not difficult to do.

Be sure to do your research and buy in markets with the strongest economic fundamentals, then hold for the long term in order to gain maximum returns.

Remember that people will always need a place to live!

Founded by Spanish missionaries in the early 1700s, San Antonio, Texas is now the seventh largest city in the United States and the fastest growing region of the state. It is located halfway between the nation’s east and west coasts and near other major Texan cities such as Austin, Houston and Corpus Christi.

Considered a gateway of foreign trade, San Antonio is recognized by Business Facilities magazine as one of the five major logistical locations in the country for warehousing and distribution. It benefits from its proximity to Mexico and has reaped the economic rewards of the North American Free Trade Agreement (NAFTA). Over half of the goods moving in and out of Mexico pass through the city of San Antonio and this trade is expected to grow. Plus, thirty percent of the city’s retail market demand comes from shoppers living in Mexico.

San Antonio was the nation’s second fastest growing major city from 1990 to 2000 according to the US Census Bureau. During that decade, the city grew 14.5 percent to a population of 1,144,646. The reported 2007 population estimate is 1,259,735 indicating a growth rate of 1.4 percent per year over the past seven years.

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HUD properties are available all over the United States, and make great investments for anybody that is interested. These homes often get a bad rap for being in bad condition, but in all actuality they are not any worse than other foreclosed homes that are available. Just like anything else, there are some HUD properties that are in good condition, and some that are in need of repairs. It is simply a matter of how well the past owner cared for the home.

HUD properties are homes that had loans which were insured by the Department of Housing and Urban Development (HUD). But when the owner fails to live up to the financial obligations that are expected, the bank then takes over the home and it becomes an HUD property. At this point, the Department of Housing and Urban Development is in charge of repaying the lender any money that they lost on the deal. So as you can see, the Department of Housing and Urban Development sticks their neck on the line when they insure the loans on these homes; if the owner doesn’t pay, they are stuck with owing money to the lender.

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Bizjournals recently analyzed private-sector employment patterns in America’s major metropolitan areas using data from the past five years. Using a nine-part formula, with data compiled since 2003 by the U.S. Bureau of Labor Statistics, they analyzed employment trends in the nation’s 100 largest labor markets.

According to the report, these are the top 10 labor markets in the country:

1. Houston, TX
2. Austin, TX
3. Dallas-Fort Worth, TX
4. Raleigh, N.C.
5. Seattle, WA
6. San Antonio, TX
7. Charlotte, NC
8. Oklahoma City, OK
9. Durham, N.C.
10. Salt Lake City, UT

It’s interesting to note that Texas has four of the hottest jobs markets in the country.

And once again, last place belongs to Detroit which has ranked as the coldest job market in America for the past two years. The biggest problem remains Detroit’s heavy reliance on domestic automakers, resulting in a loss of 30,800 jobs since mid-2007.

We just announced our latest real estate investment opportunity located in Ocean Springs, Mississippi.  (Ocean Springs Investment Duplexes)

This one happens to be very unique because of the Small Rental Assistance Program (SRAP).  The SRAP program can provide you $73,000 of free government money to purchase your real estate investment.  With this investment you end up gaining over $73,000 of instant equity!  What better way to quickly increase your net worth.

Visit our website and download the free Research Report for complete details, or just click here:  Ocean Springs Investment Duplexes.

People.

The U.S. Census indicates that our population is increasing by approximately three million people each year. All those people will need a place to live, work and shop. So there will continue to be demand for housing and that growth will continue to provide opportunities for real estate investors.

The primary factor driving real estate appreciation is migration. When you have more people moving into an area than those moving out (or passing away), you drive up demand which will ultimately increase home values.

But what drives migration?

Jobs! The largest determinant of migration is job growth. People go where the jobs are, and retailers go where the people are.
Demand for housing will continue, the question is where?

Even though U.S. job growth has been down recently, Norada’s goal is to find where job growth is up. So we begin by identifying markets with solid job growth and narrow our focus to neighborhoods that provide solid real estate investment opportunities.

In an effort to revive the economy the Federal Reserve cut the federal funds rate today but a half-point (0.5%). This lowers the rate to 1 percent – the lowest rate since 2003-2004. The last time the federal funds rate was lower than 1 percent was during the Eisenhower administration in 1958.

Today’s interest rate cut was the second half-point cut this month. The last one on October 8, 2008 was in a coordinated move with foreign central banks.

This year’s economic weakness has created huge declines in the price of oil and other commodities. While many economists believe the country is in a recession, they also believe the recent rate cuts and other aggressive actions by the Fed will help prevent a prolonged downturn and help unfreeze the credit markets.

If these aggressive moves by the federal government are successful in thawing the credit markets, it will be great news for real estate investors who are having difficulty financing their real estate investments.

Hurricane Katrina was our nation’s worst natural disaster – referred to as the “100 Year Storm”.  It destroyed 64,000 homes and 47,000 rental units.  But it also may have provided us with one of the greatest investment opportunity of our lifetime.

Prior to hurricane Katrina, the Mississippi Gulf Coast real estate market was showing significant strength due to the expanding casino market, expanding defense industry and baby-boomers looking for more affordable Gulf Coast living.  In many respects it offered people a similar but more affordable lifestyle than Florida, at a substantially lower cost.

Following the devastation of Katrina, many construction firms concentrated on the areas needing immediate clean up and repair work.  The Governor of Mississippi then announced that there was an urgent need for 100,000 new affordable homes to be built within the following 12 months.  But the true rebuilding of single family homes in the area has only recently commenced.  There were over 100,000 people living in FEMA trailers.  Today 30,000 of those people still live in trailers, and another 40,000 families are living with friends and family due to the severe housing shortage.

Other factors contributing to the demand for housing include the job growth from larger employers such as the Kessler Air Force Base, the Stennis Space Center expansion, the growing aerospace corridor, shipbuilding, growing international trade zones, and the overall Mississippi business climate.

Additionally, Mississippi changed its gaming laws to allow casinos to build 800 feet onshore.  Many of the local builders were given lucrative construction contracts to repair and rebuild casinos.  Contractors were hired to work around the clock to meet tight deadlines on getting the casinos up and running.  Today the Mississippi gulf coast is the second largest gaming destination in the USA next to Las Vegas.

Recent economic studies show that the Gulf Coast area is recovering.  Statewide, gross state product and employment have surpassed pre-Katrina levels and a reconstruction boom is anticipated for the next five years.  Post Katrina employment growth in the state more than offset jobs that were lost due to Katrina.  Retail sales in the twelve months after Katrina are 19% above pre-storm levels, indicating further strengthening in the economy.

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Real estate is the most powerful way to build wealth, and more people have become millionaires through real estate than any other means.  Despite the obvious need to save for retirement, a recent Wall Street Journal article indicated that a startling 95% of Americans will face financial difficulties at retirement!

Of course, you have several options for your retirement and other savings, but most of these options pale in comparison to real estate.  Consider options like savings accounts, CDs, bonds, and money market accounts.  These are safe options, but you certainly won’t reach a goal of building significant wealth through these means.  For the most part, these options will barely outpace inflation.  Think of it.  How many millionaires do you know who have become wealthy by investing in savings accounts?  The stock market can bring you some interesting returns, but it can also lead to some big losses.  You have very little control over the companies you invest in, and there aren’t significant tax advantages to owning stock.

Historically, real estate has provided investors with a stronger return than other options.  Consider the growth of the median price of a home from 1950 to 2007 (57 years):

Click to enlarge.

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