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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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eppraisal.com released their National Market Analysis Report for the three months ending August 2008. Of the 188 market areas tracked across the U.S., 43.6 percent show a decline in median home values, which is up from 32.4 percent from the previous three months. This ends the upward trend from the last three reports where the number of markets showing an increase in median home values was on the rise.

Most markets in the report are showing signs of leveling out or increasing values, with California being an exception. California again tops the bottom of the list with 27 of the 28 markets tracked by eppraisal.com showing declining median home values. Chico, CA is the only market that is showing signs of rebounding (see figure below). For this report Chico, CA, saw an increase of 1.70 percent to a median sales price of $245,000.

Six California markets saw double digit declines: Madera down 10 percent, Bakersfield down 10.7 percent, Riverside-San Bernardino down 11.1 percent, Modesto down 11.3 percent, Salinas down 14.3 percent, and Merced down 11.5 percent.

Markets in North Carolina, South Carolina, Ohio, and Oregon continue to gain in value and continue to show signs of a changing market. For example, the Raleigh-Cary, NC, Florence, SC, and the Dayton, OH, markets all saw median home value increases of over five percent. Raleigh-Cary, NC, increased by 8.1 percent to $200,000, Florence, SC, increased by 8.7 percent to $106,000, and Dayton, OH, increased by 10.6 percent to $110,000.

Texas continues to hold on to the postitive trend while Florida starts to dip back into negative waters. In the last report 11 of the 20 areas tracked in Florida by eppraisal.com showed positive increases in median values. This month the number of Florida markets showing increases in home values is down to six: Fort Walton Beach-Destin up 9.7 percent to $203,000, Palm Coast up 8 percent to $175,000, Panama City up 6.7 percent to $176,000, Palm Bay-Melbourne up 5.7 percent to $156,000, West Palm-Boca Raton up 5.6 percent to $285,000 and Jacksonville up 1.7 percent to $183,900. Texas shows the opposite with seven of the 11 areas tracked by eppraisal.com showing increases in median values. At the top of the list sits McAllen-Edinburg with an increase of 7 percent to $115,875, Waco with an increase of 6 percent to 119,621, and Midland with an increase of 4 percent to $172,500.

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Real estate has been regarded as one of the safest investments for quite some time.  However, despite the relative safety of real estate investments, there is always the possibility that the real estate market can fall just like any other investment.

Over the long term, real estate remains relatively safe simply due to the fact that the population of the world continues to increase while land is a limited resource.  When there is an occasional downturn in the real estate market, it is important to recognize certain strategies which can be used in order to keep a real estate investment from becoming a complete loss.

The first thought many people have when they realize the market has turned down is to attempt to sell the property as quickly as possible before the market gets worse.  In reality, most investors have found that it is often better if they can hold onto the property and ride out the market downturn.  While it is possible the market might dip lower before it rebounds, historically real estate markets always come back.

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In some of the worst housing markets in the country, deflation has reached double-digit proportions.  While housing woes have spread around the country, California appears to be poised to rank among the worse.  One of the primary reasons for this is the fact that in the last few quarters California has experienced the largest rate of deflating home prices.  In fact, home prices in California have fallen to levels that have been unprecedented.

Miami, Florida has also proven to be a difficult market at the moment.  The weak mortgage market and record high rates of foreclosures have led to declining home values as well.  In fact, Miami has been among the worst home markets in the country for two years running. The condo boom in Miami just a few years ago has further fueled the problems that have now spiraled into a massive real estate bust.

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This may be the most amazing buyer’s market in decades!

Think about it.  Interest rates are at historic lows.  Housing inventories are at 20-year highs.  Nationally, housing prices have dropped 16.3% since last year.  Sellers of every kinds (home owners, investors, builders, and developers) are motivated to sell their property to liquidate or stay liquid in these tough economic times.

I’m sure most of you have heard these stats before:  Only 2% of retirees will be financially independent by age 65, while the other 98% rely on family, the government or a job to get by financially.

If you want to make a fortune in real estate, and I’m talking about millions of dollars, then now is the time to buy!  Forget about the uncertainties of the stock market and worrying about a recession.  Now is the time to position yourself for real wealth simply by buying real estate in growth markets around the country.

If you’re not sure how to get started then call me.  I will help point you in the right direction.