Despite recent gloomy housing market reports, including Commerce Department figures that show new home selling prices recently plunged by the greatest margin since 1970, home owners remain bullish about home values.
And investors say they should be. Current market conditions are no reason to shy from the housing market as an investment, provided you apply the basics.
The vast majority of home owners, 90 percent of them, expect their own home value to stay the same (27 percent) or increase (63 percent) during the next 12 months, according to a recent survey.
"There is a divergence of opinion among housing market experts today on how much prices might adjust," said Doreen Woo Ho, president of Wells Fargo's Consumer Credit Group.
The statement came with a release announcing the Wells Fargo survey of more than 1,300 home owners it questioned in August, "Homeowners View Their Home as a Solid Financial Investment", which revealed 72 percent of home owners said equity in their home is their most important investment.
"This survey finding suggests that homeowners are seeing the conditions of their local housing markets and concluding that it is more likely that price declines will be moderate not steep," Ho added.
Real estate investors say, from an investment perspective, there's much more to expect from the current market than moderate declines, provided you apply the fundamentals.
"Lower prices mean greater investment opportunities because there are more motivated sellers and more deals coming on the horizon. Now is definitely the time to buy -- but to buy smart," says Nashville, TN-based real estate investor, author and frequent Learning Annex speaker Robert Shemin.
Among his strategies:
- Buy and Hold. The best approach to real estate investments is over the long haul. Holding property five to seven years or more is a good hedge against short-term price plunges.
- Buy Cash Flow. Buying properties that pay for themselves with rental income, helps offset lost value.
"A lot of people got stuck with the idea of buying with a negative cash flow, but now they don't have any appreciation and are getting tired of writing checks," said Shemin.
Granted, finding cash flow properties in high-cost markets is difficult, but that just means investing in hot rental markets, a growing possibility in many areas nationwide.
- Leave The Herd. The National Association of Real Estate Investment Advisors keeps tabs on lesser-known appreciating markets which have included Ely, NV and Boise, ID, among others. Shemin points to Huntsville, AL and Nashville, TN and all of North Carolina as potential hot spots.
The key is seeking out areas that haven't appreciated much in the past half decade, but are now steady and rising, often because of strong job growth. With jobs comes a demand for housing.
- Find "Hidden Markets." Markets within markets can be great investments. The ink is fading on many of Las Vegas' new housing developments on the drawing board, especially those swanky, sky-scraping, penthouse-topped, dream-home towers, but the starter home market remains strong, says Shemin.
"So there is a strong market within a weaker one. Miami is the same. The Miami market is soft, but there is still strong demand for quality beach properties in the $500,000 to $3 million range," says Shemin.
- Buy Abroad. Real estate buying laws in other countries can be daunting, financing isn't as flexible as it is in the U.S., and many European housing markets mirror the softening U.S. market, but there are opportunities abroad.
"My two favorite picks right now are the Dominican Republic and Nicaragua. Watch China and India. Their growth rates are five times that of the United States," said Shemin.
While real estate investments can provide a return in any market, it's never a magic carpet ride to wealth.
The fundamentals apply.
Do your home work. Study markets. Get help from a professional. Find a mentor. Be patient. Real estate isn't the only investment out there. Diversify.