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Real Estate Investors Hungry, Even as Economy Stumbles

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The new jobs report didn't tell us anything about the housing market we don't already know.

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Despite reporting largely what we already knew, last Friday's downbeat jobs report has so-called housing market experts running scared. Investors, on the other hand, are licking their chops.

Housing economists awoke smugly Friday morning (July 8), eager for the monthly jobs report to affirm their views on the future of US real estate. Bulls and bears alike were in for a shock, however, as the Bureau of Labor Statistics reported that a paltry 18,000 jobs were created in June, well below even the most dour forecasts. The unemployment rate rose to 9.2% and the report was, in the words of Paul Ashworth, chief US Economist at Capital Economics, "awful from start to finish."

Housing bean-counters rushed to revise estimates down, tweaking their complex models to reflect a US labor market that simply refuses to get off the mat after being knocked nearly out by the financial crisis and ensuing recession. As HousingWire, an industry publication, reported Friday, "June's anemic job growth riled housing economists, prompting many of them to lower expectations for home sales and home prices in the second half (of the year)."

So let's review: From a housing perspective, what new information did the jobs report provide that would warrant such drastic revisions from these supposed economic Einsteins?

*Silence.*

And now let's review what the report confirmed, which anyone paying even the slightest bit of attention to the economy already knew:
  • The employment market is downright abysmal.
  • Wages remained flat, dampening inflation fears and supporting low interest rates in the near term.
  • Unemployed Americans are staying that way longer, as each month more despondent job seekers are dropping out of the labor market altogether.
  • The BLS continues to prop up already weak employment figures with its questionable "Birth/Death Adjustment."
  • True unemployment -- as measured by Americans actually not working, not just those looking for work -- remains highly elevated, now above 16%.
  • Even government, which recently has been the employer of last report, has started delivering pink slips, as red-stained budgets force bureaucrats to fire their own.
I could go on, but what's the point? None of this is new. The only remarkable thing is that the same economists whose June job creation estimates ranged from a wildly inaccurate 90,000 to an even more wrong 140,000 have even a shred of credibility left.

So then, back to housing. The entire concept of investing in real estate, or any asset for that matter, is to find a way to buy property for less than its actually worth. There is then of course adding value through efficient and effective operating, but as a starting point, simple arbitrage should be at the core of any good investor's strategy. And if real estate is so very guaranteed to depreciate in the near term, then the so-called smart money should surely be running, not walking, from real estate for sale at anything less than bargain prices.

Nothing could be further from the truth. In nearly all segments, well-priced property is being snatched up in competitive bidding as billions of dollars in capital continues to chase opportunities that are in short supply. Certain market segments even have, wait for it, positive fundamentals.

Such blasphemous reports do show up in the press from time to time, but massive shadow rental demand makes a far less sexy headline than massive shadow foreclosure inventory. Even more boring is the fact that the release of the former is picking up speed, even as the release of the latter remains at a politically driven drip.

And it's easy to write off as a bubble the fact that companies like Google (GOOG), Salesforce (CRM), Apple (AAPL), Twitter and Zynga literally cannot hire fast enough to keep up with the growth in demand for their services. Or to forget that household formation has begun to pick up speed after several years of being vastly below the long term trend. Or to ignore that new construction has all but stopped, which will keep a lid on rental inventory even as demand rises.

The point isn't that we should all rush out and buy homes because a few tech companies are doing well. Despite a recent Fannie Mae poll that a majority of Americans believe it is a good time to buy a home, caution remains the most valuable arrow in a homebuyer's quiver.

The point is that reports the ship is sinking when its already underwater aren't all that important. And listening to those who change their view because of facts they should have already known is about as wise as it was five years ago, when housing couldn't go down.

See also: Minyanville's Housing Market Report by Keith Jurow
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