Notice the yellow page in the window. Yes, this is a RE(-p)O in your typical, overbuilt subdivision.

As a real estate analyst, I am especially interested in housing trends. Major elephant money (institutional investors) is gearing up for a real estate investment splash. As puzzling as it may be, it’s a commercial real estate splash. Vornado Realty Trust, the third-largest real estate investment trust (REIT) in the country, is stockpiling capital as we speak. The fundraising goal is thought to be slated at $1 billion. (1)

Vornado completed a stock sale in April raising $741.8 million alone, designated for managing debt and making acquisitions. (1) While Vornado primarily owns office and retail spaces, the commercial real estate industry is in shambles. A recent doubling in commercial loan delinquency over the past year to 7%, and an economy far from a spending, growth boom, makes residential seem like the most logical direction for new capital. (2) In Vornado’s case, they may sit on the lion’s share of their billion dollars until their analysts decide commercial real estate has bottomed out, or they manage select good buys here and there.

For us normal folks, looking to purchase an owner occupied residence, or perhaps an investment home, when is a good time to buy? According to realtor commercials, always; commissions as primary income are strong incentives in any market. If you did buy a home in the last three years, you realize, it was not a great time to buy.

For a great new home, I say start at the markets that have been hit the hardest.

The following depreciation figures in each metropolitan area measure the median priced home sold. From the first quarter ’08 to the end of first quarter ‘09, the top 10 hardest hit residential real estate markets are as follows:

1. Cape Coral-Fort Myers, FL: -59.1%
2. Saginaw-Saginaw Township North, MI: -53.7%
3. Akron, OH: -48%
4. San Francisco-Oakland-Fremont, CA: -42.7%
5. San Jose-Sunnyvale-Santa Clara, CA: -42.3%
6. Phoenix-Mesa-Scottsdale, AZ: -41.9%
7. Sarasota-Bradenton-Venice, FL: -40.8%
8. Riverside-San Bernardino-Ontario, CA: -39.9%
9. Las Vegas-Paradise, NV: -37.3%
10. Miami-Fort Lauderdale-Miami Beach, FL: -35.4%

Source: Realtor.org

At first glance, not a lot of surprises here. The most inflated real estate bubbles were famously in Florida, Phoenix, California and Vegas. Michigan and Ohio have been hit hard as well, as the manufacturing sector has shed jobs.

I’ve traveled to the Bay Area, the greater Phoenix area, Sarasota/Bradenton, Los Angeles and “the Valley”, Las Vegas and Miami. The scorched desert of Riverside doesn’t do a lot for me but most of these places have great areas and could be great places to live. These depreciation figures only factor in price fluctuations over the last year. This list clearly illustrates to me that one could move to some pretty fantastic places, down fifty or sixty cents on the dollar since the peak, and buy a home. Most of these markets were so horrifically overbuilt, 3, 5, 7-year-old homes are available; and possibly in your own ghost town neighborhood. Talk about privacy. I’ve heard whispers of Vegas suburbs having the ghost town feature, but cannot confirm with any first-hand certainty.

The main challenge during a recession is employment. Recessions are manageable as long as you have a job, as most people still do retain their job and an income, even if it is 80%-90% of its original amount.

So if you’re looking to purchase an owner occupied residence or an investment home, think about starting in these markets. There are good values already available, if you compare them to the overinflated peaks. My advice would be to wait another year and re-evaluate the price movements then. I’m not convinced that prices have bottomed out and returned to an equilibrium. And I’m pretty certain prices aren’t moving up in huge waves in any of these markets. While you sit tight, imagine some desired features to your future floor plan: a breakfast nook, a secret room behind a revolving bookshelf, a fire pole through three stories of house, a Japanese hot tub, etc.; you get the idea.

Mortgage interest rates are definitely a consideration, and the 6-12 month trend on those will likely be upward. This means higher cost of capital and worse cash flow for homeowners. If you plan on holding onto a home for the long term, securing a 30-year fixed mortgage now could be wise. If you’re willing to roll the dice on interest rate increases, or think you’ll only own the home for a short period of time, wait out the home prices.

I would caution greatly on irrational exuberance, or thinking the price of homes will appreciate rapidly, if at all. Trying for quick flips with property bought at retail prices, is not a mindset I would recommend. Stick with purchasing a quality, affordable owner occupied residence or an investment/vacation home for the long term.

Check out the “No Investment Advice or Recommendations” disclaimer below. This is for all you folks who might try to sue some day.

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(1) Bloomberg – Vornado Said to Seek $1 Billion for Distressed Real Estate

http://www.bloomberg.com/apps/news?pid=20601087&sid=aCZQ97tCmTrw

(2) The Salt Lake Tribune – U.S. Commercial Real Estate Woes Continue to Grow

http://www.sltrib.com/business/ci_12805095

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