Archive for the 'Economy' Category
“The bursting of the global housing bubble is only halfway through,” The Economist magazine wrote recently.
I disagree…
Here in the U.S. at least, the housing bubble is completely over.
It drives me nuts when I hear commentators say, “We’re halfway through,” and, “We have more pain to come.”
The fact is, right now, houses in America are the best value they’ve been in many generations. It’s not hard to understand…
If there’s one thing that Morgan Stanley would like to advise to you, it’s to take a look at single-family homes and consider it as part of your real estate investing strategy.
That’s right, these properties have become hot among real estate investors recently considering the shift in the US property market from home ownership to rentals (or as Morgan Stanley puts it, a “renter-heavy society”). It’s exactly the new real estate paradigm! Even Bank of America and the Federal Housing Finance Agency have sought measures to reduce the impact of mortgage delinquency by working on an REO rental program for its underwater borrowers.
Morgan Stanley Research released its latest real estate report, Housing 2.0: The New Rental Paradigm to provide market insights to investors. It’s interesting to know that the research team observes how more Americans have become renters instead of homeowners, attributing to different factors in the economy.
The report states:
Across the country, more Americans are becoming home renters, and fewer Americans are becoming homeowners. The beginning of the rentership society is upon us. But all renters are not equal – of the roughly 40MM rental housing units in the country (representing roughly $6 trillion in asset value), about half are multi-family and half are single- family.
Although the overall health of the economy is of interest to everyone, if you’re a banker you particularly want to know when people will start borrowing money again.
Very roughly speaking, banks typically hold equal amounts of commercial loans, commercial real estate loans, home mortgages, consumer loans, government securities, and cash. With commercial, mortgage, and consumer lending sharply lower in the last few years, banks now hold more government securities and a lot more cash, both of which don’t produce much income.
So far, I’ve never heard the same commotion in the market and the media unlike earlier this year when the US economy earned an embarrassing downgrade.
Perhaps, with all the Thanksgiving Holiday frenzy and the Black Friday storm that took place, almost everyone doesn’t care a whit about the surging US debt and is just looking forward to inflate personal spending. Well, that isn’t the case in Washington though. Democrats and Republicans are currently at a stalemate as to the best way to reduce the US debt, which now tops the $15 trillion mark from its $5.6 trillion level in 2000 according to usdebtclock.org.
Sales of Freddie Mac REO homes took a dip in 3Q11 compared to the first two quarters of the year as nonperforming loans surged consistently over the previous quarter.
The number of repossessed homes plunged to 25,300, falling by 13.5% quarter-on-quarter (q-o-q) or approximately 30,000 units in 3Q11. REO sales also stumbled from 31,600 in 1Q11, the highest number recorded in the government sponsored enterprise’s (GSE) history.
In 3Q11, Freddie Mac thrust back 24,300 homes into its current inventory while disposing 25,300 REO properties at the same time. At the end of the quarter, the mortgage capital provider has already accumulated 60,000 REO properties on its books, down by 25 percent year-on-year (y-o-y) as a result of newly completed foreclosures.
You’ve seen the headlines. The combination of lower prices, increased rents and a weak dollar are drawing investor capital from all around the globe and funneling it into American housing. According to NAR, foreign investment is US real estate has increased by 20% in the 12 months ending march 2011, totaling $82 billion in just one year. What’s missing in most of these stories is why.
Why are overseas real estate investors, who are standing thousands of miles away with little if any personal experience in US real estate, pouncing on this opportunity? Low prices and great exchange rates don’t explain it. If you hear of a stock that has plummeted, would you buy it based on that fact alone? Or would you want to understand the fundamentals of the company behind the stock. What do they produce? Who are their customers? Why should you believe this investment will pay off, as opposed to seeing the new low price as an accurate reflection of the value of the company? In other words, if it’s a piece of junk, you wouldn’t care how cheap it is.
The question most real estate investors often ask is, “Where do I invest now?”
As always, there are local housing markets around the country where homes are affordable, the underlying economy is strong, and appreciation is imminent. These are markets you should consider for your next long-term real estate investment.
Norada Real Estate Investments tracks the economic conditions and real estate trends of nearly 400 markets across the country. Because of the dynamic nature of real estate market conditions, we continually monitor and rank the top markets to make it easier for you, as an investor, to concentrate on the areas that will give you the greatest opportunity for success.
While you might be inclined to look for bargains in areas that have seen the largest price corrections in the past, watch out – there is no guarantee that home prices in areas of high speculation will ever rebound to boom levels.
Unlike the stock market, local real estate markets usually move in slow, predictable cycles. Appreciation is not luck or magic. It correlates closely with economic development and population growth in a local market.
If you missed out on Phoenix, Vegas and Florida (or if you rode those waves and know what it’s about), download the current issue of our free report.
Download your free copy of the 2012 Housing Market Forecast Today!
Home prices and sales may be flat, but the rental industry is booming. The percentage of renters is on the rise, the number of households is increasing, and more Americans are downsizing, all of which point in a single direction: rents are on the rise.
At the peak of the housing boom, home ownership in America reached an all-time high at 69.2%. Today that number has plummeted to fewer than 67%, which may not sound like a huge drop, but that represents roughly 3 million households that were owner-occupied and are now tenant-occupied.
The high foreclosure rate has accelerated the transition toward leasing, but there are a myriad of other trends coalescing to boost demand for rental housing.
Read the newspapers and we’re at the brink: Global Gloom, Deepening Pessimism, Markets Drop Sharply. Is another Great Depression just around the corner? Is the US slumping to a decade of stagnation a la Japan? Is China now eating the lunch we thought we had bought cheap? Is our financial system just a Vegas vacation, making the house rich but producing no growth?
The answer is no, even though China is nibbling at that burrito and bankers are at the slots. The hero coming to the rescue of the US economy is that trusty favorite, the US Consumer. It’s a Consumer with flaws, like any modern hero, with a tendency to binge, and again wielding the weapon that often leads to trouble: the Credit Card.
After 28 straight months of pulling back on the reins, consumers have finally found a level of debt that feels good enough to allow more spending to flow. During those 28 months, the level of consumer debt per person [let's leave mortgages out of this] fell 13 percent, from $8,600 to $7,500. During the last recession with a real estate crash, 20 years ago, consumer debt dropped 14 percent. Sure, many things are different now, but some things aren’t.
Categories are graded from A thru F:
Economic Growth: C- (June 2011: D+)
The U.S. economic recovery remains sluggish. Real GDP grew at a 1.3% pace in 2Q11, following downwardly revised growth of 0.4% in 1Q11; far below the 1.9% rate of expansion previously estimated for last quarter. We now have positive Y/Y employment growth for eleven consecutive months, with payrolls expanding by 117,000 in July, up from 46,000 in June, and the unemployment rate dropping from 9.2% to 9.1%. Initial jobless claims fell to 400,000 in July. Government payrolls decreased by 37,000 in July, the ninth straight sequential drop.
The average length of unemployment increased to 40.4 weeks (new record high), and the labor force percentage of those unemployed over 27 weeks dipped slightly from 4.1% to 4.0%. On a positive note, retail sales continue to improve, with Y/Y growth at 8.5%.
Leading Indicators: C- (June 2011: C)
Leading indicators for the economy are mixed this month, with our overall grade for this subsection of indicators dropping from a C in June to C- in July. Many of the leading indicators we analyze have been trending down over the past several months, returning to levels not seen since mid-2009, a time when the U.S. economy was still in the midst of the Great Recession. For example, the ISM Purchasing Managers Index has fallen two consecutive months, dropping to 50.9 (just above the expansion threshold value), a level not seen since July 2009. In addition, the Vistage CEO Confidence Index fell in 2Q11, crossing into negative Y/Y territory for the first time since 2Q09. Corporate profit growth was revised down from last quarter, rising at an 8.8% Y/Y clip in 1Q11, the weakest annual growth rate since Q309. Other leading indicators such as the ECRI Leading Index were relatively flat versus last month.
Real estate investors are likely to be three times more active than other types of home-buyers in their local markets within the next two years, according to a national survey by Realtor.com operator Move Inc.
Market research firm GfK Custom Research North America conducted the survey on behalf of Move from April 11-15, 2011. The survey included telephone interviews of 1,200 U.S. adults, of which about 200 were identified as real estate investors. Data was weighted by age, sex, education, race and geographic region.
A third of real estate investors are planning to buy in the next 24 months, compared to 8.6% of typical home-buyers — those planning to purchase a primary residence, vacation home or retirement property. Another 9.1% of typical home-buyers, and 28% of investors, plan to purchase between two and five years from now.
Among the investors, half plan to hold their properties for five or more years while 11% expect to sell within a year of purchase, according to the survey.
Jobs, jobs, jobs! That’s what we’ll hear from now on through the 2012 election, and rightly so. Although they claim otherwise, Wall Street and the Big Banks are not the essential, indispensable, must-be-bailed-out part of the national economy: it’s people with jobs. Those people account for 70 percent of the economy (the government is 20 percent).
As we’ve already seen, those people aren’t spending very much money these days, needing no more time-share condos, full-size SUVs, leather furniture, and flat-screen TVs. Which means there are fewer jobs for the people who were making those things a few years ago.
The national economy grew at a modest annual rate of 1.3 percent in the second quarter of this year, better than the 0.4 percent of the first quarter, but there is some cause for anxiety: personal spending was flat in the second quarter, after growing between 2 and 3 percent in 2010.
Most people think of the real estate market as something that’s measured like the stock market—bearish or bullish. In real estate, the common expressions for a bull market are “up,” “strong,” “good,” “hot,” and “seller’s.” A bearish market is described as “soft,” “bad,” “down,” or “buyer’s.” On a daily basis, you’ll hear the media use these expressions to describe the real estate market based on facts and figures, most of which are confusing to the average investor.
Let’s discuss each of the categories for the numbers you may be hearing and see how they affect the market and, more importantly, your investing strategies.
Most people think of the real estate market as something that’s measured like the stock market — bearish or bullish. In real estate, the common expressions for a bull market are “up,” “strong,” “good,” “hot,” and “seller’s.” A bearish market is described as “soft,” “bad,” “down,” or “buyer’s.” On a daily basis, you’ll hear the media use these expressions to describe the real estate market based on facts and figures, most of which are confusing to the average investor. Let’s discuss each of the categories for the numbers you may be hearing and see how they affect the market and, more importantly, your investing strategies.
Categories are graded from A thru F:
Economic Growth: D+
Trends were mixed this month, as a few metrics ticked up while the majority ticked down, resulting in a drop from C- last month to D+ this month for overall economic growth. The employment market improved once again this month, (albeit at a less than stellar pace) and Y-O-Y employment growth has now been positive for nine consecutive months.
Payrolls expanded by 54,000 in May, the smallest gain since September 2010 when 29,000 jobs were lost, while the unemployment rate increased marginally from 9% to 9.1%. The government continues to slash jobs (29,000 this month), and has now eliminated roughly 850,000 jobs over the last 12 months. In addition, the average length of unemployment increased to 39.7 weeks (a new record high), and the labor force percentage of those unemployed over 27 weeks rose to 4%. While still down Y-O-Y, mass layoffs have been trending up over the last several months, rising again this month.
The rate of inflation (both full and core) continued to increase this month, maintaining its steady upward trend that began in Spring/Summer 2010.
