Displaying items by tag: real estate

(Beijing)

All our readers will be aware of the intensifying trade war between the US and China. And while the US seems to have a strong position on trade (with less to lose than its partners), that is not the whole picture. The reality is that the US makes up much of what it loses on trade through massive overseas investment Dollars that flow into US assets. While much of the public’s awareness of this centers on Treasury bonds, one other big area of foreign participation is in MBS, or mortgage bonds. What is much less known is that more recently, foreign buyers, including China, have been much bigger consumers of US mortgage agency bonds (e.g. Fannie and Freddie).

FINSUM: China has the power to simply turn off the spigot on the mortgage market, which could lead to a surge in interest rates and a resulting collapse in prices. That would put US politicians in more hot water than tariffs ever could.

(New York)

A new study out of Harvard makes a very interesting point about US home prices. While real estate prices have seen a strong and steady rise since the bottoms of the Crisis, and prices in many markets seem very lofty, the truth is that the cost of owning a home actually hasn’t risen for the last thirty years. How is that possible? The answer is that while home prices have risen compared to income, interest rates have also fallen strongly, meaning the monthly mortgage payment it costs to actually own a home has remained pretty much flat sine 1987 (on an inflation-adjusted basis).

FINSUM: So this is a good point, but the reality is that the monthly payment does not account for the huge down payment that families now need to come up with (which they did not back when interest rates were at 12%).

(New York)

Bloomberg has come out with a very interesting piece about how climate change has been affecting the US real estate market. A new study looked at over 3,000 US cities and mapped them by risk to different types of climate change-drive natural disasters, like hurricanes, floods, and wild fires. What the study concluded was quite striking—in all of those categories, the riskiest locations had seen values drop considerably, while the safest locations had seen major gains. For hurricane surge risk, for instance, the “very low risk” locations had seen annual gains of 8.1% between 2007 and 2017, while the “very high risk” locations saw annual losses of 9.1%.

FINSUM: It is interesting to see that Americans have been taking account of these risks for some time even as the national debate over climate change rages on. This could be a major new differentiating factor in real estate.

(New York)

The US real estate market looks set to change in a big way. Brokers and developers are sensing it, and consumers are making it happen. The change is in the geography of the market. The new SALT limits in the updated tax code mean that wealthy residents of higher tax states like New York, New Jersey, and California, now face much higher tax liabilities. As a response, many of them are seeking to buy homes and domicile themselves in tax-free states like Florida, Texas, or Nevada. One real estate developer in Nevada explains the situation, saying “If you’re a wealthy tech executive from the Bay Area who can live wherever you want and you have a $3 million income, you would have $399,000 a year in savings here. That’s a lot of money to spend on real estate”.

FINSUM: We think this trend will be both long-term and very bullish for markets like south Florida and other sizable metropolitan areas in low tax states . The high tax states might face a reckoning, especially those without a major metropolitan area to suck in residents (e.g. Oregon).

(New York)

If we were to tell you that median sales price per square foot was down 18% from a year ago in New York City, would that make you worry about the real estate market? Well, that is exactly what has happened, all alongside sales volume hitting its lowest level in six years in the Big Apple. The developments have brokers and real estate developers worried there, but perhaps the whole country should be paying attention. New York has experienced a great deal of new apartment inventory over the last few years as developers have pushed through many new projects, all of which seems to have conspired to oversupply the market.

FINSUM: The boom in real estate since the Crisis was always urban-driven, and so the downfall may be an urban-led one too. New York’s real estate woes are not unique, so we would not be shocked to see prime urban property fall in value across the country, especially with mortgage rates on the rise.