Sound Advice Covers REITs, REIT Funds, Real Estate Stocks, and Foreclosure Rates.

During the 1998-2000 stock market mania, when most investors were chasing high-tech stocks, Sound Advice portfolio was recommending carefully selected REITs. As most investors got killed during the ensuing bear market, REITs soared 25 percent during the same period. When the bear market ended in late 2002, REITs rolled to mind-boggling highs as speculation drove them to excess that climaxed in 2007. During the climax, we liquidated nearly all of our REIT positions to wait for a better entry point.

Foreclosure Rates

This is an important metric because the state of the economy and the state of the real estate market are very much tied together these days. Until the glut of foreclosures works its way through the banking system, we will not see a meaningful recovery in the economy. When we see foreclosure rates decline significantly, we will know the worst is over, and it will be an excellent time to invest in real estate for pennies on the dollar, or selected REITs and REIT Funds, as well as other investments that benefit from a substantial recovery in the economy.

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Real Estate Versus Stocks

There are few forces that are more important to a market’s destiny than the amount of capital that is available to it. If a market becomes dangerously superheated, it will absorb a larger proportion of available investment capital than economic conditions and market demand can justify. This change will be reflected not only in the rising market’s prices but also in the prices of competing markets, which will be lower than their underlying fundamentals would indicate they should be. Over the last 100+ years, we can see this titanic struggle between the stock market and its foremost competitor for investment dollars, real estate. The Sound Advice Risk Indicator measures the ratio of stock prices to real estate prices and reveals the best times to be in either stocks or real estate (including REITs, and REIT funds).

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Diffusing the Bulls and Bears

For 30+ years, the Sound Advice Diffusion Indexes of Leading and Lagging economic indicators have predicted major turns in the stock market. By comparing hand-picked economic indicators, these Diffusion Indexes reveal when the economy is heading for a recession or about to become over-heated, the primal forces behind the direction of interest rates and the stock market. We have found these Diffusion Indexes to be another very useful tool for determining optimum times for investing in REITs and REIT Funds.

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