When Will The Housing Crisis End?

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In part two of our ongoing series on developing a real estate investment strategy for the current market decline, we  take a look at the book More Mortgage Meltdown by Whitney Tilson. But first, a little background information…

In part one of this series we discussed how any viable investment strategy today must be developed from the top down because most asset classes are positively correlated and are being driven by the macroeconomic picture. I then introduced you to a resource tracking the macroeconomic picture which provided clear evidence we are in a deflationary decline every bit as powerful as the Great Depression was at the same point in time. The charts also provided no evidence of significant improvement as of right now. 

In part two we direct our attention to real estate. Why? To find a great investment, of course!

One little known fact about the recent collapse in stock and real estate values is the S&P Super-composite Index of 16 home-building companies has been a leading indicator throughout the decline and recent recovery. In other words, housing has been leading the market and is useful to watch. It is the tail that is wagging the dog.

The U.S. mortgage market is the pin that pricked the credit bubble. Until the carnage in mortgages is contained or resolved it is unlikely the U.S. and world economies will turn around. Real estate was the force that drove the decline - and will continue to drive the decline – until it is complete. Only then can true healing begin. Tilson fully develops this thesis in his book and provides supporting graphs to show when the crisis can be expected to end.

What I like about Tilson’s book is he’s not a “Johnny-come-lately” to the real estate decline. He saw the issues clearly and acted on them before they were well known. That same clarity drives his writing in this book. His message is clear – it aint over yet, but we could start laying some groundwork soon.

Another aspect of the book I really like is how the data is relatively current. All the charts and analysis are up to date through March 2009 and nothing fundamental has changed since that date. I am recommending the book only for the first 120 pages where he analyzes the condition of real estate making the case for continued delinquency and foreclosure problems. The remainder of the book is interesting filler but not germane to this discussion. The meat that can shape your real estate investment strategy going forward is contained in the first 120 pages making this a relatively quick read because it is also mostly charts.

I want to be clear, this book is essential reading for your real estate investment strategy, and you won’t find a better bargain for the education received. I wouldn’t put money at risk in the real estate market without knowing what is in this book - and you shouldn’t either. Because the swings in the markets are so violent lately it is well worth the effort to educate yourself.

In my next post, part three of this series, I will provide you with another valuable educational resource offering a unique perspective on building your real estate portfolio during this crisis. Best of all, it won’t cost you a penny so please stay tuned and tell your friends.