Real estate falling out of favor with investors

Energy ranks as top investment choice

 

A growing number of investors expect home values to decrease in the coming year, while inflation and unemployment is generally expected to grow, according to a “Voice of the American Shareholders” poll released by BetterInvesting, a nonprofit organization focused on investor education.

 

BetterInvesting, formerly the National Association of Investors Corp., sponsored the poll, which was introduced in 2003 and is designed to track investing behavior and provide insight into shareholders’ attitudes and views on current topics that could affect their investment decisions.

 

The Voice of the American Shareholder study was conducted online by market research firm Harris Interactive on behalf of BetterInvesting between Oct. 12 and Oct. 24 among 1,006 U.S. adults, 18 or older, who currently own individual stocks or stock mutual funds.  Figures for age, sex, race, education, region and household income were weighted to bring them into line with actual proportions in the population. Propensity score weighting was also used to adjust for respondents’ propensity to be online, BetterInvesting announced.

 

More than half of investors perceive real estate to be a good investment, according to the latest poll, while most investors think real estate is a good or a better investment than one year ago and more than one-third think it will be worse a year from now. Besides their primary residence, just over one-third of shareholders invest in real estate — including 16 percent who have residential rental properties and 13 percent who own vacation homes, the poll revealed.

 

About three in four investors (77 percent) predict that the market will improve or stay about the same in 2006. However, as compared to November 2004, more shareholders think inflation (66 percent in 2004 versus 78 percent in 2005) and unemployment (42 percent in 2004 versus 55 percent in 2005) will increase, while the stock market (18 percent in 2004 versus 34 percent in 2005) and home values (10 percent in 2004 versus 30 percent in 2005) will decrease in the coming year, the survey revealed.

 

Individual investors named energy, real estate and pharmaceuticals, in that order, as the top three industries for investment in 2006, and 22 percent of respondents selected energy as the best industry to invest in now while nearly half selected energy as one of the top three best investment opportunities, up from 32 percent in November 2004.

 

The real estate industry ranked second with 16 percent of shareholders choosing it as a good investment in the current environment. In November 2004, real estate was the top choice with 22 percent. Rounding out the top three was the pharmaceutical industry, with 12 percent of respondents making this choice.

 

American shareholders, cautious about the current energy situation, pegged the automotive industry, travel and government as the worst segments for investment. Forty-four percent put the automotive industry among the top three worst investments. Travel, selected by 36 percent, and government, selected by 29 percent, finished the top three worst segments in which to invest. Shareholders cited out-of-control costs as the primary reason why these segments are viewed so dimly.

 

While in November 2004, 23 percent of VOAS respondents selected the health care industry as one of the three worst investments, now only 11 percent of shareholders hold this view, BetterInvesting reported. Compared to one year ago, more shareholders say the automotive industry is not a potential growth industry (37 percent this year versus 21 percent last year) and its services and products are out of date (27 percent in 2005 versus 12 percent in 2004).

 

The BetterInvesting Shareholder Confidence Index is at an all-time low at 1.2 (on a scale from -100 to 100 where zero equals a neutral attitude towards the stock market). Confidence is lowest in the Midwest, with a confidence index of -1, compared to an index of 21.3 in January 2004 in that region. The Eastern region holds the highest rating at 2.6, but has dropped from a 16.8 rating in January 2004. According to the SCI, confidence decreases with age, as investors 65 and older hold an index of -8.9 while investors 35 or younger hold an 8.3 rating.

 

The proportion of investors who believe the U.S. economy is moving in the right direction is at its lowest level since September 2003 (46 percent in 2005 vs. 57 percent in September 2003).

 

Continuing the downward trend from May 2005, fewer than four in 10 (38 percent) shareholders agree that it is a good time for new investors to get involved in the stock market.

 

“During what seems to be down times in the market, our members know that by following BetterInvesting’s principles of investing regularly in growth companies, reinvesting all earnings and diversifying investments, individuals can ride out practically any market and see their investments show a profit over time,” said Ken Janke, NAIC chairman, in a statement.

 

About 85 percent of investors who participated in the survey predict that the costs for daily expenses such as energy, food and gasoline will be on the rise in the coming year. With this in mind, 31 percent of respondents said paying off debt was the most financial goal in 2006, while 24 percent said saving retirement was the biggest financial priority.

 

“With an eye on their wallets, nearly half of investors continue to feel that oil prices will increase, and almost seven in 10 have made some change in their spending behaviors or investment strategy as a result of energy prices. The South seems to be most effected by the current energy prices with 78 percent of southern respondents indicating they have made changes in their financial habits,” BetterInvesting reported.

 

About 47 percent of shareholders participating in the survey stated that they believe major oil companies “are primarily responsible for the current energy prices, a finding that is more true in the Midwest (51 percent) and South (51 percent) than the East (44 percent) and West (41 percent).”

 

About 57 percent of shareholders perceive real estate to be a good investment. About 61 percent of shareholders in the East and West regions feel strongest about real estate as a good investment, while 47 percent of Midwest investors share this opinion, according to the poll results.

 

While most investors (79 percent) think real estate is a good or better investment than a year ago, more than one-third (36 percent) think it will be worse a year from now – “underlining investors’ concerns about the volatility of the real estate market,” BetterInvesting reported.

 

Founded in 1951 and with headquarters in Madison Heights, Mich., BetterInvesting’s community consists of nearly about 200,000 individual members and nearly 20,000 investment clubs. On average, BetterInvesting members add a collective $130 million of new investment capital to their portfolios each month, and boast combined portfolio assets in excess of $117 billion, according to the announcement.

 

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

 

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