3 Short Ideas on Real Estate Investment Trusts

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 |  Includes: AEC, AIV, AMB, ARE, AVB, BMR, BXP, CBG, CLI, EQR, FCH, HME, HST, LPT, SPG, VNO
by: Michael Michaud


Learn to Anticipate Real Estate Trends For Buyers, Builders, Bankers and Brokers


This week I've got short sells on three real estate investment trusts. They are Alexandria Real Estate Equities (NYSE:ARE) life sciences properties, Mack-Cali Realty Corp (NYSE:CLI) commercial properties, and Home Properties Inc (NYSE:HME) apartment rental properties. Residential and possibly more so, commercial real estate have more downside coming first before upside in my opinion.

See below for the sell entries, stop-loss, and take profit price targets. These REITs popped up on my technical scans of stocks Monday morning. When I see more than one company in the same industry popping up on my scans as low-risk high-reward trades setups I take special notice. I don't think it's a coincidence but something much bigger to consider.

I suggest not being too positive on a USA real estate recovery just yet. I would suggest that real estate prices and rents are headed much lower, and a bottoming of prices will be years from now.

Misconceptions and The Reality About The Future of USA Real Estate Market

The housing recession is not over and from a nationwide perspective, it won't be over months from now according to some analysts, and I suggest years from now.

Once the bottom in real estate prices hit, don't expect prices to fly back to the levels before the crash, but expect and look for continued stable prices once the bottom is in before thinking about jumping back into real estate speculation.

Real estate foreclosures should continue to remain high, with a possible stabilizing of prices in late 2011 maybe. I suggest it may take even longer than that to stabilize.

The biggest positive effects for the real estate market will be low prices along with low interest rates to provide a strong buying environment.

Of course, existing real estate holders want to be positive about the real estate market and prices. The idea that real estate does not go down was silly for anyone to think of, but many people did think that, and now they know better. Asset prices of anything can go down as well as up.

Right now the pain is still too much for homeowners, and profit margins are still being squeezed for real estate investment trusts. Even if consumers are feeling more confident than during the 2007 and 2008 real estate crash, they are not optimistic enough to go buy large ticket items like real estate, home furnishings and cars just yet.

Foreclosing on a real estate investment and or possibly going bankrupt is painful financially, and even more so emotionally. The emotion of failure, whether it's your fault or not, is very real and lasting. It's that past emotional pain that ensures that people-- whether they have the money and or the ability to buy real estate-- sit and re-consider their future financial moves and investments.

Social mood drives social events to the upside and downside extremes as we have seen in the stock and real estate markets time and time again. It's easy now to be negative on economic outlook because it's very real and affects many people. Sure, there have been some recent reports showing some improvement in the real estate market, but not enough, and sustainable enough to warrant full blown optimism and a buying spree just yet.

Another real estate negative is what is called shadow inventory, which is real estate held by the banks. This is real estate that has not been listed on the market yet, or delinquent mortgage holders who have not been foreclosed on yet. This inventory is big and needs to be reduced to give support to real estate prices going forward and that will take as many years as it took to build the new developments.

Also there are millions of real estate sellers waiting for the crisis to pass and calm down before they put their property on the market for sale. The bottom line here is that more residential and commercial inventory on the market will help slow the real estate recovery.

Personal Finances Affecting Real Estate Prices

The unemployment rate is high, and looking to stay high for a while, with lower wages for those who still have jobs, putting the squeeze on higher real estate prices anytime soon.

The fact is that almost 50% of buyers are not able to save up enough down payment money, or qualify for the loan even if the bank was lending, which they are not right now, while working to shore up their balance sheets first, and that's at the current discounted real estate prices. If you think prices can't go lower, think again, because they can, and I'm betting real money that they will.

In the long term, the real estate crash and subsequent financial crisis was the best thing that could happen to the economies involved. It brings them back to financial reality and fiscal responsibility that's been lacking for decades.

No charts this week on these short sell picks. Open up your charting program along with your fundamental analysis and review them to agree or disagree with my analysis, and always use stop-loss in case the market proves you or me wrong.

Sell Short Alexandria Real Estate Equities - Ticker ARE

Sell Entry: 73.76 to 69.57

Stop-Loss: 75.30 or 8% from your entry point.

Take Profit Areas: 61.24 to 60.10, 58.51 to 57.42, 51.67 to 50.68, 37.63 to 37.04


Short Sell Mack-Cali Realty Corp - Ticker CLI

Sell Entry: 32.96 to 31.04

Stop-Loss: 33.89 or 8% from your entry point.

Take Profit Areas: 27.99 to 27.49, 26.84 to 26.32, 23.03 to 22.59, 15.62 to 15.42


Sell Short Home Properties Inc - Ticker HME

Sell Entry: 50.86 to 48.90

Stop-Loss: 53.09 or 8% from your entry point.

Take Profit Areas: 43.36 to 42.65, 41.81 to 41.11, 37.74 to 37.19, 29.45 to 28.88


Disclosure: Going short these stocks per above trade plan.