The Contrarian on Real Estate

Posted by Chad Wasilenkoff, The Contrarian

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WASILENKOFFOver the past 3 or 4 years I have watched with keen interest (and participated) in the ups and downs of the American and Canadian real-estate markets.  Recently published stats have fueled a bit of media frenzy which has become an interesting study in conflicting market noise.

In the Canadian market there are those pointing to sustained or increased property values and a market that is bloated with high unaffordable prices ripe for a correction and the other side that says sales are sustaining and even growing and we are and there should be no correction on the horizon.

The US market is even more interesting, there seem to be two themes in the US market one that says the market has bounced off lows and although it has recovered somewhat in certain areas it is still undervalued. The other theme points to the market coming up too fast and is now ahead of sustaining fundamentals. Since the US market had been in a several year slump let’s look at that market as viewed by some recently published statistics.


Case Shiller composite index of 20 metropolitan areas climbed 10.9 percent year over year, beating expectations for 10.2 percent.

Institutions like the Blackstone Group have spent more than $4billon for 24k homes in the U.S housing market that it plans on renting out.

A recent analyst forestry report cited housing starts that are 29% above year ago level and inventories of new homes for sale near 50yr lows and is predicting a cumulative housing deficit of 2.8M units in 2014

Last year, Realogy Holdings Corp who is a franchisor of six of the most recognized brands in the real estate industry:, CENTURY 21®, Coldwell Banker®, Sotheby’s International Realty® etc. (NYSE:RLGY) had revenue of $4.7 billion and a gross profit of $1.0 billion. In the first quarter of this year compared to last year and EBITDA was up 34%.

The Keller Group, an engineering specialist, has reported a near doubling of full-year profits as it benefited from an improvement in the US house building market. 


The Federal Reserve housing affordability index has declined 13% since the beginning of the year. And about 22 million Americans may lack enough home equity to move, keeping property listings tight and limiting sales as the housing market recovers.

Shadow inventory John Burns Real Estate Consulting, estimates approx. 10.0M housing units have negative equity and an estimated 53% are keeping their mortgage payment current,

Lender prosessing services reports in May 2013 over 9% of outstanding mortgages in the us were either delinquent or in forclosure.

According to the Campbell/Inside Mortgage Finance Housing Pulse Tracking Survey, the average American Joe isn’t participating in the U.S. housing market. In April first time homebuyers accounted for 29% of home purchases in the U.S housing market, 17% lower than April 2012.

A recent IPO filing of American Homes 4 Rent provided some interesting information on the market: total US home inventory was 133M units, of which 12.6m were vacant.

Some companies are hedging both sides of the market a recent IPO  American Residential Properties (NYSE: ARPI) feels they are ideally positioned f if there is more appreciation in markets like phoenix where there properties have gone up, and conversely they enjoy upside if the market falters and more foreclosures result in more prospects for their rental properties.

Which to believe?

My view based on these stats is that these is still the start of a long recovery…..If you have a longer time horizon of 5 – 10 years then enter at any time.  If you want to try and time the market then there “may” be a short-term pullback over the next 3 – 12 months, but trying to time the bottom and the extent of a pullback is risky and one could miss the opportunity altogether.  Do your research and know your marker….not just compared to other home or real estate in that area, but also the macro trends that creates an environment where the market you invest in should outpace the greater real estate market.

Chad Wasilenkoff is the CEO of Fortress Paper and a regular contributor to MoneyTalks