Eq: Real Estate
(United States)
A lot of calculations are being done to see which states will be most hard hit by the current coronavirus lockdown. Within those assessments it is becoming clear that specific housing markets will be hit hard too. The states that look likely to have their housing markets fall the most are New Jersey, Maryland, and various counties elsewhere in the mid-Atlantic. Specifically, Sussex County (NJ), Charles County (MD), Atlantic County (NJ), Passaic County (NJ), Rockland County (NY), Orange County (NY), and Sussex County (DE).
FINSUM: These are all the locations you’d expect. The percentage of income it takes to manage a mortgage and other ownership expensive is quite high in these areas, so there is going to be a surge in delinquency.
(New York)
After about three years of being a laggard and worrying investors that a recession may be coming, US real estate looks to be turning the corner. Not only have home sales been rising, but new mortgage data looks very encouraging. Home lenders extended $2.4 tn in new home loans last year, the most since 2006. That figure is a whopping 46% increase from 2018. One economist from Freddie Mac described the situation bluntly, saying “When a large and cyclical part of the economy—housing—is starting to improve, it’s a good sign for the economy at large”.
FINSUM: It is important to note that most of this was refinancing activity because of the drop in rates, so it is not as massive an increase as it appears. Still, good momentum.
(Atlanta)
US Real estate has been a worry spot for the last few years. For the last three years or so everyone thought real estate might be the initial signal that the economy was headed lower. However, that never materialized and real estate has been looking modestly better for the last several months. The end of 2019 continued that streak as existing home sales rose 3.6% in December as low unemployment helped support the housing market.
FINSUM: We think the housing market is just solid and steady right now. No huge speculative gains, no gigantic increases in debt etc. It is a nice contrast to publicly-traded securities!
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(New York)
Retail is dying, right? Brick and mortar is doomed, supposedly, but that assumption creates some opportunity. The reality is that despite the broader headwinds the industry is facing, some malls and some REITs are doing well. Macerich, for instance, is a large REIT that owns several “trophy” malls amidst its 47 properties. The stock is trading at just 7x earnings, which incredibly cheap for a REIT. Apartment REITs, for instance, are trading at 20x. Its dividend cover ratio is fairly tight, but its overall model looks solid and it is yielding 10.9%.
FINSUM: There is a lot of opportunity in retail stocks, but you need to know where to look, and it takes quite an understanding of the space to sift through the options. Macerich looks solid.
(New York)
Hopes for the housing market had been rising strongly in the last couple of months. After nearly a year in the doldrums, existing homes sales rose for a pair of months in July and August, giving the market hope that falling mortgage rates had revived the market. However, in September, sales again fell sharply, with existing home sales dropping 2.2% from the previous month. Prices, however, are rising, as short supply is moving asking prices higher.
FINSUM: Prices are holding up okay, but there is not much buying and building occurring, which means housing will be contributing less to the economy overall.
(New York)
Is New York a bellwether of US real estate performance or is it an isolated enclave with no real relevance to the majority of the country? Hard to know, but if the former, then there is a lot to worry about. NY home sales are plummeting and just showed their worst decline since the Financial Crisis. Median sales prices in Q3 dropped 12% from the previous year, the sharpest drop since 2009. Average home value fell below $1m for the first time in four years.
FINSUM: In our opinion, this is idiosyncratic to New York. The city is seeing a huge flux of newly built apartments that are boosting inventory, and at the same time there is a new progressive mansion tax hurting demand.