Displaying items by tag: real estate
REITs are having an outstanding year. The FTSE Nareit Equity REITs Index is up almost 18% this year, well ahead of the market’s 12% gain. With the direction of rates and yields, it is easy to understand why. The question is which are the best REITs, which is not always easy to answer. Here are five of the best performers so far this year: DFA Real Estate Securities I (DFREX), Neuberger Berman Real Estate (NREAX), Principal Real Estate Securities (PRRAX), Cohen & Steers Real Estate Securities (PRRAX), DWS RREEF Real Estate Securities (RRRAX).
FINSUM: We like REITs right now. They have solid yields (e.g. 3%), and given the likely direction of rates, stand do well in terms of price appreciation.
The US real estate market has looked weak for over a year now, and things aren’t really improving. While the market has not seen the bottom fall out, it is going through a weak period. New data on home sales shows that home price gains in 20 US cities have slowed for the 12th straight month. Property values in March were up 2.7% from a year earlier, their weakest gain since August 2012.
FINSUM: The market is steadily slowing. One might hope that falling yields could help perk up the market, but the threat of the trade war will probably keep buyers anxious.
So headline economic data has been good lately. Yet the markets are leaning towards a bearish view on the economy and a dovish view on the Fed. With such confusion, it is hard to figure out what might happen. Therefore, we are going to focus on some alternative economic indicators and today we found an interesting one: lumber prices are slumping badly at the time of year they are supposed to be rising. Lumber prices usually rise in the spring as builders stock up for construction. However, poor weather and a lack of construction is badly hurting prices. In May 2018 prices were at $639 per thousand board feet, now they are just $334, or down about 50%! Mills are cutting back production as a response.
FINSUM: That is a pretty alarming price drop and another sign that the underlying health of the real estate market is not good.
The term that property owners and landlords generally cringe at hearing is echoing in cities all across the US. That term is rent control. Oregon passed a law this February to cap rent increases at 7% plus inflation, and now many other locations, including Colorado and New York are considering such measures. In some instances, it is a matter of repealing an existing ban on rent control, which would then let cities set their own rules.
FINSUM: The biggest hit to public markets from the spread of such measures will be in apartment REITs like Equity Residential, AvalonBay Communities, and Essex Property Trust.
The real estate market has been worrying and disappointing for well over a year now. Home sales and new constructions have been trending poorly, all of which has worried investors that a recession may be on the way. However, this year’s drop in yields has made mortgages much more affordable, which seems to be helping the market. Big market player Realtor.com has just put out its updated outlook for the year, saying “lower, but still increasing mortgage rates that will buoy home prices and sales by boosting buyers’ purchasing power beyond what we initially projected”.
FINSUM: For a $200,000 mortgage, the difference in monthly payments right now is already almost a $150 lower versus what it was in the fourth quarter. That is a meaningful difference for many families.