Eq: Real Estate
In the aftermath of what had been a sweet buzz of a ride, stocks are embroiled in another unwelcome turn, according to ally.com. Last week, of course, the S&P 500, bless it, threw in the towel of what had been a four-week run. This week? You go it; the setback continues.
So, what’s up with that? Well, let’s count the uncertainties. Corporate earnings season’s winding down. Summer? Vaulting into the rear view mirror. And the news cycle will slow to a trickle. It all spells a vacuum in solid direction which, right again, puts air under the likelihood of volatility, the site continued.
In fact, taking, well, stock, of the interest rate trend lines over this summer, they’re more rocky than stable, according to money.usnews.com. The swings in the average 30 year fixed rates have been madcap, percolating and descending by as much as a quarter point per seek following a mid June peak to 5.81%.
The 30-year fixed rate went back up to well over 5% this week -- a reminder that recent volatility remains persistent, said Sam Khater, vice president, chief economist and head of Freddie Mac’s Economic and Housing Research division. “Although rates continue to fluctuate, recent data suggest that the housing market is stabilizing as it transitions from the surge of activity during the pandemic to a more balanced market.”
Many investors have moved off of REITs and they are trading well below their 200-day moving averages. This makes them a value proposition, particularly as volatility starts to rise. Uncertainty particularly around Ukraine and Russia is fueling volatility but its uncorrelated with REIT volatility which gives it a huge risk advantage on top of it all they are more robust to inflation. Two great REITs to consider with great value at the moment are Alexandria Real Estate Equities and Crown Castle International. These REITs have healthcare and telecom exposures respectively which are in a particularly attractive position as healthcare spending is a higher portion of budgets and 5G is exploding.
Finsum: It’s easy to see that alternatives should be seeing inflows given the volatility in traditional equity and bond markets.
The pandemic affected the economy in a variety of different ways, but combinations of unemployment and work from strategies caused a mass exodus from major American cities and New York has been no exception. However, UBS Group AG says that is about to change. They are recommending investments into REITs, e-commerce ETFs, and fintech/smart mobility in order to be a part of the comeback. A combination of higher vaccination rates and more tolerance for state and local governments to avoid shutdowns will help spur New York's comeback. They particularly cite Manhattan’s REITs for having a fruitful future.
FINSUM: More jobs than ever have moved fully remote and it's questionable whether the city lifestyle will be as appealing if it's not necessarily a requirement.
More...
House prices are at all-time highs, and since a small slump at the start of the pandemic have really seen rapid growth but are they in a bubble? Long story short, probably not, because a few key metrics are keeping them elevated. Federal Gov assistance programs have diminished the foreclosure numbers. Added to that the trillions poured into countless QE and MBS purchases have made mortgage rates be at near all-time lows. Finally, there appear to be real shortfalls in different housing markets, and the pandemics work from anywhere policies are having strong growth in places like Boise, Austin, and Orlando. All of these factors come together to say that there is a relatively low risk of a housing bubble but to keep your eyes peeled.
Finsum: The Case Shiller home price index is at an all-time high but more importantly growing at an all-time rate, this is getting close to bubble territory but it is lacking the speculative component.
Everyone and their dog is searching for viable alternatives because omicron has the stock market skittish and there’s absolutely no yield in bond markets. This has many investors turning to REITs, but how do you find the outperformers. There are six key metrics to look out for: a high fund from operations, total cash from operations growth, high liquidity ratios, accelerated dividend growth rates, a good-sized market cap, and finally price gain. These are the most important factors when evaluating REITs. Some of the best examples in these leading categories are Prologis, Essential Properties, Innovative Industrial Properties, and Life Storage Inc.
FINSUM: Alternatives could have their most promising year yet with all the outflows from the bond market coming in.
The housing market has outpaced nearly all expectations as prices are up a staggering 17.7% over the last 12 months. Some bears said this pace has to slow and that simply put there aren’t enough buyers to keep demand boosted this high, but Goldman Sachs sees it differently. They are projecting home prices to grow at 16% over the next year. They believe millennials are just hitting their stride in the buyers market and that a woefully short supply will keep prices elevated. New home construction has been far too sluggish in the post-2008 environment as investors are skittish, but low-interest rates give many the opportunity to buy. All of this puts the U.S. at an estimated 4-million home shortage, which has Goldman extending the horizon for house price growth through 2023, projecting another 6% increase. Others aren’t as bullish; CoreLogic and Freddie Mac are projecting 2.2% and 5.3% respectively.
FINSUM: Extremely low interest rates and glimpses of inflation could prop up home prices for the time being, as excess money has tended to flow disproportionally into assets like real estate.