I've been trying for the past six months to sell my mom's house, which sits in a pretty nice neighborhood in suburban Pennsylvania. Two things I've learned from the process: Prices are still falling dramatically, and as they do, they create a domino effect that brings down the value of all the residential properties in the process.
So when someone tells me a housing recovery isn't too far away, my first instinct is to laugh ... then, eventually, listen to what they have to say.
A recovery here to stay
Recently, the CEO of Toll Brothers
Singing a similar tune a few days ago was Freddie Mac's chief economist, Frank Nothaft. He thinks that 2011 will be a big year for housing, and that the combination of low interest rates and a bottom for house prices will support a recovery in both construction and mortgage markets. Because the Fed is expected to keep the fed funds rate between 0% and 0.25% for the next year or so, this could be a great sign for REITs such as Annaly Capital
Nothaft thinks that when the economy stabilizes next year (if it stabilizes, that is), "many first-time buyers will be attracted to the housing market in the new year, likely translating into more home sales in 2011 than in 2010."
So what's the best way to play?
It's hard to take some of the optimists at their word; we'd all love to believe that a recovery is just around the corner, but some of the data certainly doesn't seem too great. In October, new home construction fell to an 18-month low. Housing starts fell 11.7% in the same month, down from 588,000 to 519,000; according to a census by Briefing.com, analysts were estimating about 600,000 new starts. Karl Case, co-creator of the S&P/Case-Shiller index of property values, recently said it would be "another couple of years before you really can declare victory."
That said, if you're a believer that things might get better in the next year or so, now could be the time to jump on some of the big domestic residential builders. So far this year, The Ryland Group
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Jordan DiPietro owns no shares mentioned above. The Fool owns shares of Annaly Capital Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.