Ken Heebner on CNBC

[desmond]

I just watched Ken Heebner on CNBC, he was comparing the housing market to the 1929 Stock Market crash, 50% drops in certain areas. He was recommending apartment REITS.

[lamoneyguy]

Why apartment REITs? Because foreclosed homeowners will flock to aparment buildings? Is apartment pricing totally independent or even inverse to the SFR/Condo/Townhouse market? I don’t think so. Won’t the value of apartment REITs also decline in a declining real estate environment?

~<http://www.itsjustmoney.blogs.com">lamoneyguy

[(former)FormerSanDiegan]

Where is the cheapest place to live ?

Apartments. Seems that the demand will be there.

Also, IF (a big IF) bond rates go down, the relative value of dividend-paying assets (REITS) goes up.

[lamoneyguy]

I know you said “big IF” but don’t you think we are more likely to see bond yields rise? What happens to apartment REITs in a declining RE market and likely accompanied rising rates?

~lamoneyguy

[(former)FormerSanDiegan]

If I could predict bond rates I wouldn’t be at my office typing on this board. I’d likely be on my private island somewhere in the Caribbean.

Anyway, if bond rates go higher, REIT payouts lose value relative to other investments. However, the demand is still there, so APT REITS would presumably fare better than commercial REITS, mortgage REITS (ugh!), etc. Remember Ken Heebner is essentially a real-estate money manager. The apartment arena is the safest bet for him.

[HereWeGo]

That sounds like a good bet until the current glut begins to sort itself out.

Anyone have a list of apartment REITs to consider?

[(former)FormerSanDiegan]

Just buy Heebner’s fund

CGM realty.

He’s made some pretty good calls in the recent past, such as selling his positions in homebuilders in June 2005.
See link below.

[powayseller]

In the long term, long term bond yields should rise. Here’s why: our long term bonds are bought by foreign central banks who are recycling US dollars from all our overconsumption. Once US consumption slows –> fewer dollars going overseas –> fewer Treasury bills and bonds are bought –> price of Treasuries and bonds goes down as demand declines –> yields rise.

This could play out differently if the US convinces other countries or the Plunge Protection Team (imagine printing dollars) to start buying treasuries. Or Saudi Arabia, rich with petrodollars, could end up buying the Treasuries that China and Japan and the other countries don’t buy anymore. We can’t track Saudi’s dollar buying through the Flow of Funds report, because Saudi does not report their purchases. Perhaps some currency revaluation has some effect that I don’t understand.

I would like to hear what others, especially Rich and Chris, think about this scenario of rising bond prices due to lowered imports.

And how does this all affect REITs?

Schahrzad Berkland

[(former)FormerSanDiegan]

PS – Good points.

The hard part is predicting rates.
You just laid out a relatively straightforward ( and IMO) likely case for rising long-term rates. However, the bond market is often not straighforward. Your second paragraph lays out a scenario that is less likely IMO, but plausible.

“And how does all this affect REITS ?”
That’s the simpler question IMO. As an investor, would I rather own an apartment REIT spitting out a NET after expenses 8% or would I rather have intermediate-term bonds paying 5% ?
What about if these same bonds went to 9% (apartment reits are much less attractive), what about if bonds went to 3% (more attractive for 2 reasons, cost of leverage goes down, relative value goes up.)

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