It’s Time to Move Your Billions (from Oil) into Real Estate

Remember, you heard it here first: Oil prices will keep falling for a while. There will be daily undulations, of course, but overall oil prices are headed south. Looking into my crystal ball, I’m seeing $100 a barrel or less before prices start to climb again.

It’s not because John McCain and George Bush are unsheathing their oil drills and heading for the coastline, and it’s not just because Americans are rediscovering the bicycle. Although I’m sure supply and demand have something to do with falling oil prices, I think the real cause is something much more basic: Greed.

In the short term there’s an abundance of oil for the taking, and while existing refining capacity may be inadequate to keep up with demand, there’s no shortage of petroleum in the world. Not right now, anyway. Later on, yes. The day of reckoning is sure to come some day. But what do Americans care about “some day”? They live in the moment

It was mainly greed that drove oil prices to record heights as unregulated speculators manipulated the futures market. With government oversight reinstated recently, oil speculators can’t run amok the way they used to, so the low-hanging billions aren’t there to be harvested any longer. You can bet the speculators will be looking for new get-rich-quick opportunities.

So psst! I think the time has come to make lots of dough in real estate.

The housing market crashed because prices got too high for most buyers to afford a home. When real estate prices spiraled a few years ago, wages in America did not keep pace. People couldn’t afford to buy the homes on the market. So two things resulted:

– Smart people stayed out of the market.

– Not-so-smart people took out adjustable-rate mortgages they couldn’t afford and (predictably) couldn’t meet the monthly payments once the interest rates went up.

With the slackening of demand, speculators who had helped drive up real estate prices, ran for cover. Some of them probably moved their money into oil futures.

As a result, house prices plummeted, and then plummeted some more. Here’s the up-to-the-minute news on this topic from the Associated Press:

“Home prices tumbled by the steepest rate ever in May, according to a closely watched housing index released Tuesday, as the housing slump deepened nationwide. The Standard & Poor’s/Case-Shiller 20-city index dropped by 15.8 percent in May compared with a year ago, a record decline since its inception in 2000. The 10-city index plunged 16.9 percent, its biggest decline in its 21-year history.”

You can bet many wage earners can now find affordable homes once more, and every day new buyers will emerge. Folks get married, or promoted, or have another kid, or graduate from college, or whatever, and start looking around for that white picket fence. Home sales – and prices – are due to start recovering soon.

And (here’s the clincher!) Uncle Sam has dug into his pocket to ensure that the housing market will be stable. Your tax dollars have been pledged to shore up Fannie Mae and Freddie Mac, nourishing home sales and maintaining a robust supply of mortgage dollars.

Fannie Mae (the Federal National Mortgage Association) is a government sponsored enterprise created in 1938. It was established in order to provide local banks with federal money to finance home mortgages in an attempt to increase home ownership in the wake of the Great Depression.

Freddie Mac (the Federal Home Loan Mortgage Corporation) was founded in 1970. This is a corporation chartered by Congress to increase the supply of funds that mortgage lenders, such as commercial banks, mortgage bankers, savings institutions and credit unions, can make available to homebuyers and multifamily investors.

With uncharacteristic generosity, the government lets you buy shares in these agencies. That’s right: They are backed by Uncle Sam but you get to invest in them and keep the profits. Is that a deal or what? So, now that you have probably sold your oil futures and are looking around for someplace else to sink those billions, you could do a lot worse than buy stock in Fannie and Freddie.

And, while you’re at it, why not pick up a dozen or so of those houses that are going begging in one of the biggest bail-outs in the history of Capitalism.