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The number of homes sitting on the market is at a nine-year high, inventory levels are at a nine-year high. Is it a good time to buy?

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06-27-2006

Stacey Delo, host: Marketwatch, Internet Network

Well, the number of homes sitting on the market is at a nine-year high, inventory levels are at a nine-year high. Is it a good time to buy?

Hugh Bromma of The Entrust Group, the CEO there, says yes.

So, explain this thinking, Hugh.  We've got medium home prices up about six percent, also a lot of inventory on the market.  But you still say it's a good time to get in.

Mr. HUGH BROMMA (CEO, The Entrust Group):  It is.  And it really depends on the market.  Because when we look at the data that we have regularly available to us now, it indicates that, in fact, people are buying less.  The market is softening, and that interest rates are going up. In fact, they are up one percent over a year ago.

But that's the broad market.  But there are still markets in which people can really buy investment property, even residential property, and it can still be a good deal for them.

DELO:  So, you're not talking about the hot markets, where I've seen estimates where you know, sales--the prices could fall say 20 percent over the next year or so.

Where are you talking about?

Mr. BROMMA:  That's right.  What I'm talking about is typically where people can cash flow properties.  So, it really depends on where one cash flows.

For instance, there still parts of Florida, there's parts of Texas, even in parts of New England and in Michigan, of all places, where you can actually have properties that will cash flow for you.  And that should be the indicator. Not necessarily that it's an overheated market, because we all know what that is.  It's where can I really get a return?

DELO:  And so, how do you go about finding those places as an average investor?

Mr. BROMMA:  Well, fortunately, what's readily available to us is that, for example, NAR, the National Association of Realtor, has a huge amount of information that's available in the marketplace, in the markets throughout the United States.  And also local realtor organizations will even have that.

It's just a function of going out there and saying what will the cash flow be?  What kind of loan will I have? What kind of debt service do I have to have?  And making sure that the debt service is something that the investment will carry.

DELO:  So, you do a lot of real estate transactions with The Entrust Group.

Mr. BROMMA:  Right.

DELO:  What markets are you keying in on right now?

Mr. BROMMA:  Well, what we're seeing is that our clients, which basically are soft directed individual retirement accounts and 401(k)s, they're looking at particular markets that do cash flow, because it's absolutely required that they do.

And where we're still seeing the increases are in the Texas marketplace, we're still seeing that in Florida, we're even seeing some of that in California, of all places, on the central valley of California, as an example.

DELO:  And are you seeing that in any particular type of market, condos or second homes?  What type of places are we talking about?

Mr. BROMMA:  Primarily what we're seeing is the investment markets in single families.  We're seeing some activity in one to fours still.  Condo activity is starting to be a little bit more than we thought it would be at this time, probably because they're more affordable and people are able to make those cash flow in the right marketplace.

DELO:  But you would say that on the broad scale, the housing market is cooling and what kind of a correction are you looking for?

Mr. BROMMA:  There's no question that it's cooling.  And based on the information that we're looking at, recent articles in the Economist, for example, indicate that we really need to be very careful and very wary, about what is happening in the marketplace, that we're following some trends that Europeans, for example, certain countries, Spain, England and so forth, have experienced.

That we're really talking about perhaps about a 12-year cycle.  Now, in California, for example, that's not unusual.  California has had 10-year cycles.  Other parts of the country have differing cycles.  But a 12-year cycle is really what we're talking about.

DELO:  So, for someone right now wanting to get into the market, what would be your first step--what's your first suggestion to them?

Mr. BROMMA:  First suggestion is do the research.  They need to see what market they want to be in, what kind of investment that they want to make, whether it is a condo, whether it is a one to four unit, or a single family dwelling, where it is.

And that it positively cash flows.  That they don't go in with an adjustable rate mortgage at this particular point in time, it's a bad time for that because, as rates go up, the ARMs go up also.  And you have to be able to cash flow that, and it's a really tough time when you don't cash flow a property.

DELO:  Great.  You're interesting, as always.

Mr. BROMMA:  Thank you.

DELO:  Good speaking with you.

Been speaking with Hugh Bromma.  He's CEO of The Entrust Group. 

I'm Stacy Delo with MARKETWATCH.