“Massive inflation” is poised to strike the U.S. economy and the best hedge against galloping prices won't be gold but real estate, says the sector's mogul Donald Trump.
Gold, a fixed asset whose supply does anything but fluctuate, has long been used as a hedge against inflation, although real estate will do a better job going forward due to its availability and current pricing.
“The bottom line is I love real estate,” says Trump.
“I like it because I think you are going to have massive inflation at some point, and to me real estate is a much better hedge against inflation than gold, which you can't touch.”
Inflation fears aside, fundamentally, real estate is a good play, even for the small investor.
“I think it's a great time to buy a house whether you live in it or rent it out,” Trump says, adding investors should target homes banks own and want to divest.
“You should only buy a house from a bank that owns the house because the bank will give you financing for that one because they want to get rid of it.”
Turning to stocks, a rather new asset class for Trump, Procter & Gamble and Pepsi are good plays. Previous good bets included Bank of America.
“Now, my timing was better than my knowledge,” Trump says.
Some cautious market observers see the housing market finally bottoming out, including Robert Shiller, who predicted the tech bubble in the stock market in 2000 and the housing bust a few years later.
“It could turn around, you know. It's been going a long time,” Shiller, a Yale economist and co-founder of the Case/Shiller Housing Index, told CNBC recently.
“We're seeing some good news now. Starts, permits, confidence,” added Shiller, known for his often bearish views on the sector.
The S&P/Case-Shiller composite index of 20 metropolitan areas dipped 0.5 percent on a seasonally adjusted basis in December after declining 0.7 percent in November.
The 20-city index fell to 136.63, the lowest level since January 2003.
While home prices are still falling, the pace of their decline appears to be slowing, which suggests the sector may finally be hitting bottom, although further declines are still possible.
“After a prior three years of accelerated decline, the past two years has been a story of a housing market that is bottoming out but has not yet stabilized,” says David Blitzer, chairman of the index committee at Standard & Poor's, according to Reuters.
“The pick-up in the economy has simply not been strong enough to keep home prices stabilized. If anything it looks like we might have reentered a period of decline as we begin 2012.”
Other experts agree that the bottoming out phase will last a while.
“House prices are continuing to be very weak even though we have seen some leveling off on the activity side of the data,” says Sean Incremona, economist at 4Cast Ltd. in New York.
“It will take some time for that relatively positive activity to filter in to prices, but at the same time we are still looking at foreclosure issues, distressed properties and low absolute levels of activity. It is really a tough market for these prices to make any progress.”