And when I look around me and see what's going on in the markets right now, I see two nasty scenarios coming to pass.
Today, I want to tell you why the worst is not yet over in housing, and why the dollar will continue to get crushed …
Mega-Trend #1: Housing's Elusive "Bottom" Keeps Getting Pushed Farther Out
Hardly a day goes by without some pundit somewhere calling a "bottom" in housing. Two-bit real estate agents … ivory-tower economists … starry-eyed portfolio managers … they can't seem to help themselves!
But as we have been saying throughout the year, our research tells me the worst is not behind us. Sales remain weak and inventories are extremely high. Prices simply have to fall further to right the ship. Nothing I've seen has changed my mind. If anything, things are getting worse, especially for the public home builders. Get a load of the latest news out of these guys …
March 27: Lennar, the largest homebuilder by sales, reported a stunning 73% plunge in quarterly profits. CEO Stuart Miller, who only a couple months earlier prompted a big rally in building stocks by releasing an optimistic earnings target, did a dramatic about-face. Not only did he say the company wouldn't meet his earlier forecast, he also said things were so poor and the outlook so cloudy that he couldn't even set a new goal!
April 4: Ryland Group said first-quarter sales dropped a sharp 26%. Meanwhile, the company announced a hefty $65 million charge because of slumping land and property values from one end of the country to the other.
April 10: D.R. Horton, the second-largest homebuilder, dropped a bomb of its own. The company said second-quarter orders plunged 37% … average prices dropped almost 6% … and that "the spring selling season has not gotten off to its usual strong start."
Result: These stocks continue to trade like death warmed over. And if the key spring season finishes as poorly as it began, these companies are in for even more pain.
Meanwhile, the mortgage problems that were supposedly "contained" are seeping into other areas. For example, I'm seeing major problems with companies that lend to the so-called Alt-A borrowers, people who fall between the subprime and prime categories:
Shares of a big Alt-A player, M&T Bank, just plunged the most since 1998. Reason: Bond investors soured on Alt-A loans, which drove down the value of the mortgages on M&T's books. Another company, American Home Mortgage Investment, saw its stock lose 15% in one day. It said demand for higher-risk mortgages had dried up, and that it would have to boost reserves to account for borrower defaults. And FirstAmerican LoanPerformance, a research firm, said the 60-day late payment rate on Alt-A mortgages has more than doubled to 2.6% in the last year. Thirty-day delinquency rates are even higher — around 5%.
As a result, lenders are cutting back on their riskier loan programs. That, in turn, is going to knock marginal home buyers out of the market and exacerbate the housing downturn.
And that's not the only trend I see right now …
Mega-Trend #2: Higher Foreign Interest Rates Are Driving Down the Dollar
Clearly, the U.S. housing outlook stinks. That's forcing the Federal Reserve Board to keep interest rates stable, despite clear and present inflation dangers.
Meanwhile, the economic outlook overseas is great. Countries like China, India, Japan, Brazil, Australia, and Canada are all outperforming the U.S. by virtually every measure. Because of that strong growth, foreign central bankers around the world are steadily hiking interest rates …
The Reserve Bank of Australia raised rates three times in 2006, with another hike in the weeks ahead.- The European Central Bank has increased rates to 3.75% over the past several months, and based on their comments this week, we are expecting another hike in June.
- The Reserve Bank of India raised its key rate twice this year.
- The People's Bank of China is boosting its benchmark interest rate.
Heck, everyone from Taiwan to Norway to Latvia is boosting rates.
What happens when foreign central banks get serious about fighting inflation while our Federal Reserve stalls? The dollar gets sent to the woodshed! The broad U.S. Dollar index is already down almost 4% from its January high. It's trading at its worst level against the euro since January 2005. It's getting trounced by the British pound, closing in on the two dollars-for-every-one-pound level for the first time since 1992. And it has plunged to a 17-year low against the Australian dollar!
None of This Makes Me Happy, But It Can Make You Money
The good news: You can still make lots of money in real estate if you are smart with your approach. If you are one of our international Premier Members at PropertyVestors, exchange rates for the real estate opportunities we provide you are looking better every day. If you are a Premier Member here in the U.S., the strategies we provide help minimize your risk in today's market while maximizing your return. And as dismal as the news may be, our Premier Members are still receiving double- to triple-digit returns.
Hopefully, you've been following our advice on how to make the most of these trends. For instance, I've devoted previous PropertyVestors columns to telling you how to diversify your IRA mutual funds into safer real estate investments.
How have those strategies worked out for you and your family?
Prosper with Smart Strategies from PropertyVestors
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
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With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. You can be protected from a downturn market, whether it is a substantial correction or any other trouble that may be brewing on the economic horizon. The fact of the matter is: The "general" U.S. real estate market is in the doldrums and you really need to do your homework to understand what strategies will protect your assets. PropertyVestors' real estate strategies can position you to take advantage of these and other market conditions. Not only that, it can help you maximize your profits while minimizing your risks.
To learn more about these topics, visit www.propertyvestors.com, sign up with the investment group by becoming a Premier Member for $245.25 annually and receive our eBook: "Capitalizing on Real Estate in Today's Economy." For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About The Author
Sarah Barry is the founder of PropertyVestors (www.propertyvestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double to triple digit returns on their real estate investments.
