Chicago Adam Slone got burned by the stock market. But his home and rental property stayed rock solid. So now Slone is out of stocks and into real estate.
"I think what everybody has learned is that none of us really understand the stock market right now. With all of the analysts getting into trouble, you don't know who to trust, not to mention with all of the corporations getting caught," said Slone, owner of a Washington-based health care recruiting company. His stock holdings have lost nearly half their value.
Whether it's a new home or a real estate investment trust, many investors shaken by the uncertainty of Wall Street are putting their money into property.
The National Association of Realtors reported that sales of existing homes in May were running at an annual rate of 5.75 million, the fourth-highest monthly level on record.
According to Merrill Lynch, between Jan. 1 and last week, investors put an additional $2.7 billion into real estate investment trusts, or REITS, which are companies that invest in real estate holdings. The figure is a huge leap from $34 million for all of last year.
The strong real estate market is attributed to the relative stability of real estate as well as some of the lowest mortgage rates in at least three decades. Thirty-year fixed mortgages are around 6 1/2 percent.
Chicago real estate agent Mike Langland said last week the area real estate market was showing no signs of slowing down. "Our business has probably doubled from last year and last year was a very good year," he said.
Developers are gobbling up land on Chicago's South Side as more people are interested in buying homes, Langland said.
In Lawrence, the Douglas County Appraiser's office said the number of home sales in Lawrence has
remained steady in 2002, but the value of the sales has been increasing.
Gary Nuzum, managing broker with Coldwell Banker McGrew Real Estate, said Lawrence residents are beginning to think more about real estate investments as an alternative to their stock plans.
"We're seeing more people say they would rather move up to a larger house than put their money in the stock market," Nuzum said. "We're seeing that particularly in housing that is $250,000 and up."
Residential sales also are up in California, where the real estate market slumped after the dot-com collapse.
"As we saw the downturn, we started to see a shift of dollars into real estate as it was the safe haven," said Robert Bailey, president of the California Association of Realtors. "Now it's a better long-term place to put your money as far as the investment stand point."
While the slide on Wall Street is eroding many people's savings, it may not necessarily knock the legs out from under the real estate market, said Lawrence Yun, an economist at the National Association of Realtors.
He said first-time buyers often do not have their down payment money invested in stock market. And he said that second-home buyers who invest in stocks tend to have diversified portfolios and have already shifted more of their investments into real estate.
Washington real estate agent Ron Sitrin and his wife joined a small group of investors in buying an apartment building. They expect to close on the property next month.
Sitrin, who also has invested in a condominium, said he used money that he would normally have put in a mutual fund or stock.
"It's for retirement and college education and three weddings," said the father of three little girls. "I look at the costs I'm facing in the future and it's daunting. I need more help to get to where I want to be over a long period of time. It just seemed like good sense for me to go into real estate."