Archive for the 'Economy' Category
How does the economy really work?
This simple but not simplistic video by Ray Dalio, the founder of Bridgewater Associates, shows the basic driving forces behind the economy, and explains why economic cycles occur by breaking down concepts such as credit, interest rates, leveraging and deleveraging.
U-Haul moving truck price disparities usually indicate domestic migration trends long before official migration does. In light of that, we compared the costs of renting a truck each direction to and from 16 cities and learned that:
- People are leaving New York, Chicago, Boston, and Philadelphia in droves (and are being partially replaced by foreign immigrants).
- People are flocking to Portland, Seattle, and many more affordable southern markets.
The 2016 housing market is expected to be a picture of moderate but solid growth, with increasing interest rates a minimal concern. Rental investors will particularly benefit as property appreciates, rents rise to record heights and vacancy rates fall.
The housing market is looking more and more attractive for predictable yields as equities continue on their wild ride. “Extreme volatility in the stock market may drive more investors to invest in relatively stable assets like housing,” said Anthony Cazazian, senior VP of national sales and business development at B2R Finance.
Here are four macro trends generally agreed upon by leading housing authorities to take place in 2016. Taken together, they make a solid case for investing in rental housing.
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After peaking in 2006, the median U.S. house price fell about 30%, finally hitting bottom in late 2011. Since then, house prices have rebounded strongly and are nearly back to the pre-recession peak.
However, conditions in the latest boom appear far less precarious than those in the previous episode. The current run-up exhibits a less-pronounced increase in the house price-to-rent ratio and an outright decline in the household mortgage debt-to-income ratio—a pattern that is not suggestive of a credit-fueled bubble.
Families are facing much bigger rent checks this year — especially those living in cities in the South and West.
Rent prices have been rising across the country, but rents for single-family homes in these two parts of the country increased the most in the last year, according to a report from RentRange.
“The biggest increases were in the areas where the [housing] market was most depressed,” said CEO Wally Charnoff.
As you have probably heard, China seems to be on the edge of a significant crash. This has prompted questions of how to predict and prepare for the next real estate market crash in the US. We’ve had a couple of suggestions that tracking NODs (Notice of Default – the first step in the foreclosure process) would be a good indication. We have no crystal balls but here are our thoughts.
There is probably no single, reliable technique for predicting the next real estate market crash because each crash has a different cause. More than once we’ve been asked if tracking NODs would be a good predictor of a coming crash. I believe tracking NODs will tell you what has already happened as opposed to what is going to happen.
There are more renters now than in the history of the United States. Unfortunately, we’re also in “the worst rental affordability crisis that this country has ever known,” per the U.S. Secretary of Housing and Urban Development. That’s a bad combination.
Let’s take a look at what happened…
Every time a property is sold, the surrounding economy gets a boost. Local businesses and industries benefit at every stage of the process from the sale to post-sale purchases. These include aspects like home construction costs, real estate brokerage, mortgage lending and title insurance.
Hawaii leads the way with a $177,000 boost to their local economy. The national average is $57,500.
Take a drive through the urban portion of any major city and you will likely see cranes and construction crews dotting the landscape, building what appears to be an endless supply of apartment units. Your eyes are not deceiving you. Construction in 24 of the top 27 apartment markets in the country has eclipsed 24-year historical averages.
Many investors frequently make the often damaging (or fatal) mistake of buying property with little to no consideration of the neighborhood and market the property is in. This can be one of the greatest mistakes an investor can make because if you buy in the wrong neighborhood or market, you’ll be stuck with the problems that come with it because of its location. Your only option may be to sell the property at a loss.
I’m currently reading Dr. Peter Linneman’s “Real Estate Finance and Investments” and it includes some great information on how to predict population growth — the number one indicator of real estate price appreciation and rent growth.
Here are some of my notes:
Over the past decade, almost all of the growth in America’s households has been driven by renters, especially renters of single-family residences (SFRs).
Owning the stereotypical modest home with a white picket fence was long a hallmark of the suburban society that characterized the second half of the twentieth century (at least in the popular imagination). But the foreclosure crisis triggered by the Great Recession made renters out of millions of former homeowners.
Three powerhouse metropolitan areas — New York, Los Angeles, and Houston — together accounted for one of every seven new jobs created in the country over the last three years. These top three markets added 300,000+ new jobs from 2012 through 2014.
A total of 17 metro areas added at least 100,000 new jobs during that three-year period.
The percentage of U.S. households that own a home has dropped significantly since 2008, and experts say this downward trend may well continue for at least several more years.
Over the last ten years the nation has lost 1 million net homeowner households and has gained a whopping 10 million rental households.
The transformation of the American Dream, most broadly manifested in popular folklore as the aspiration of the US middle-class to own a home (even if it means agreeing to a 30-year loan with one’s friendly neighborhood too-big-to-fail bank), into the American Nightmare, in which an entire generation (the Millennials) is locked out of purchasing a home due to over $1 trillion in student loans hanging over every financial decision, an abysmal jobs market (for everyone but college educated “waiters and bartenders” whose hiring is on a tear), and banks’ unwillingness to lend money to anyone that can fog a mirror, and forcing millions of Americans to rent instead of buy, has been duly documented here before.