Post No 1:Is buying a house right now a sound financial decision?

As the stock market went through an upset, followed by a rebound this week, you might be wondering if it is a good time to invest in real estate.

I wrote a post last week on ActiveRain, a social networking site for the real estate industry, in which I discussed Suze Orman's advice earlier last week on NBC's Today show. Orman gave consumers three tips to protect their money; one of which pertained to real estate. She said consumers should buy real estate if they can get a good deal, "thirty to fifty percent" off.

The response on ActiveRain has been from real estate professionals about their local markets. Some markets have shown modest appreciation of 3-5% in home prices. Others have seen a decline in home prices in varying percentages. So far, all have commented that they cannot fathom a deal in which a real estate buyer would get 30-50% off a home sale, even if the house were a bank-owned (REO) property or in foreclosure.

Last month, I wrote a short series of posts in which I interviewed homeowner Meredith Molokie, who sold her house in California and upgraded because it was the right time for her family. She ended up selling her house in a neighborhood where she beat out foreclosures, AND she was able to upgrade to a house that she otherwise might have been priced out of the market for if she had waited a few years to buy.

Lee Greve, owner and broker of Connect2Agent, wrote a post for this blog last September, "Home Prices have fallen in your area- The perfect opportunity to upgrade". Greve said even in a market where a real estate seller's house value might have decreased from the year past, that seller should still consider upgrading because of the deal he/she can get that otherwise wouldn't be available in a market with a higher demand from real estate buyers.

I pose a similar question to the readers of this blog that I did to the ones on ActiveRain, not because I want to beat a dead horse, but because I think it is an important issue:

Post No 2:"For Sale"

23 months ago: A real estate "For Sale" sign hangs on the front of new townhomes in this 14 March 2007 file photo in Centerville, Virginia.Wall Street shares raced higher Tuesday after crude oil prices dipped on signals that tensions appeared to ease between Iran and Britain over the Islamic republic's holding of 15 British sailors.The Dow Jones Industrial Average advanced 111.18 points (0.90 percent) to 12,493.48 and the Nasdaq composite leapt 28.58 points (1.18 percent) to 2,450.84 at 1520 GMT.The rally gathered momentum after the National Association of Realtors said its pending home sales index rose 0.7 percent in February, a sign that the real estate slump may be easing. "The stock market appears to be resilient, having handled the Middle East flare up in pretty good shape," noted Fred Dickson, market strategist at DA Davidson

Post No 3:Weak Housing Market Affects Stock Market

The National Association of Realtors (NAR) expected the home prices to finish down for the year, which would be the first drop since 1968. Single-family homes are expected to decline by 1%,to $219,800. The number of home sales is also expected to dip from 6.48 million in 2006 to 6.29 million in 2007, a drop of 2.7%. Experts believe speculative investing in real estate is not going to work any more and buyer should be in for long-term. In 2008, NAR is forecasting price gains of 1.4 % for existing homes and 2.2 % for new homes. NAR also expects interest rates, currently at about 6.16 % for a 30-year fixed-rate loan, to rise gradually to about 6.5 % by the Q4.

Subprime Lending Industry
Subprime lending industry has added to the declining home prices. High foreclosures and forced sales all add up to the already increasing inventory, expectedly hurting the real estate industry. Loan originators are tightening up lending standards this year in response to increasing defaults among subprime borrowers. This makes it even more difficult for buyer to buy homes, subsequently weakening demand for housing market.

Walls Street
Wells Fargo (WFC) has put a ban on risky lending practices where big financial institutions and investment firms have bought home loans in bulk from banks and other lenders and bundled them into securities to be sold to investors, theoretically spreading risk and helping provide more funds for lending.

Toll Brothers (TOL) reported increase in the rate of cancellations. The Q2 cancellation rate was 19%, up from 9% a year ago but still easing from 30% in Q1.

More on Foreclosures
Rising foreclosures will bring misery to many home owners but bargain prices for some lucky home buyers. Many real estate auctions market more than 500 foreclosured properties in a span of a week. Few homes will go for less than $5,000. Although many of the sales this year have clustered in the economically hard-hit Midwest, many of the homes coming to auction later this year will be higher-end properties such as California, Texas and Florida.

Below is a Heatmap, showing the foreclosure filings on a per capita basis. Darker the red color, the more per capita filings there are.

Post No 4: Market Efficiency:

The differences between the stock market and fantasy sports provide great learning opportunities, too. Insider trading is illegal, but it keeps the stock market honest and efficient. What exactly is an efficient market, you ask? Well, it’s when everyone makes investment decisions based on the same public knowledge that Bob next door has. When you don’t play by the rules, like Martha Stewart and various other infamously corrupt former company executives, you go to jail. On the other hand, insider knowledge in fantasy sports gives you an incredible advantage over your competition. If you have private knowledge of a player’s injury, field and weather conditions, or in the case of the NBA, crooked referees, you increase your odds of success. While this isn’t an efficient market, it’ll still help you understand the stock market and keep the SEC from knocking at your door.

These are just a few examples of how you probably already know all you need to know about investing in the stock market, you just didn’t realize it. Granted, there are dozens of other theories and concepts that apply—diversifying your portfolio, insuring your “studs,” and buy-low/sell-high to name a few—so feel free to leave a comment if you’d like to discuss further. I may not be a true stock market guru, but I have won a few fantasy leagues in my day.

Post No 5: Fantasy Sports and the Stock Market

The U.S. economy is lagging worse than reruns of The English Patient. While the banking and real estate industries have their investors in tears, oil and gas investors are sporting Tony Robbins-sized grins, puffing on a $50 Cohiba as their yacht pulls into the harbor. What’s my point, you ask? They were opportunists, seizing opportunities when others looked the other way. When asked what his investment strategy is, Warren Buffet—worth a reported $62 billion—explained that he “simply attempts to be fearful when others are greedy and to be greedy only when others are fearful.” The market will eventually rebound, that’s the beauty of capitalism. In today’s bearish market, there’s no better time to sin than now.

If you’re already investing in the market, congratulations, let me get you a cookie. However, for the rest of you, you’re either extremely conservative or just gun-shy about putting your money into something you don’t fully understand—the stock market. Let’s face it, if you knew as much about the stock market as you do about the various fantasy sports draft strategies or salary caps, things would be different, right? Well you’re in luck, because it turns out that fantasy sports actually represent an experimental market, so knowing how to run a team makes you capable of running your own stock portfolio. I know, you’re excited, but settle down a bit so that we can learn some basic concepts to get you on your way to stock market riches.

Let’s start with the “big picture.” The fantasy league represents the market, team owners are the investors, and the players are the stocks. Write it down. Still with me? Good. Now let’s get an introduction to the meat of this sandwich—relevant financial theories.