Displaying items by tag: real estate

(New York)

With rates looking likely to rise there are increasing concerns that the US housing market might be in for a rough patch. Rising rates mean more expensive mortgages, and combined with the lowering of the interest deduction threshold in the new tax package, real estate could be in for a rough ride. However, the opposite may be the case. The reality is there is low inventory and little new construction, leaving many buyers chasing a shortage of homes. Prices have risen steadily since the Crisis, but with the exception of a few coastal markets, have not surged, meaning pricing still looks reasonable. “Housing is in the third or fourth inning of a nine-inning game”, says one portfolio manager.

FINSUM: All the risk is in mortgage rates. If the Fed hikes very aggressively then it will hurt the market, but if things keep moving at this leisurely pace, housing will likely do just fine.

(New York)

Well the market may have been very chaotic in recent weeks, but at least one sector is sending an unequivocal buy signal. That sector is REITs, and the context for the call is that the sector has performed terribly over the last year. REITS were down 5% in 2017 versus an S&P 500 gain of 25%. This year, they are off 10%. Those losses mean REITs are yielding almost 5%. The sector looks fundamentally healthy and will benefit if the economy continues to expand. Big fears over rates rising, which affect REITs, seem to already be priced in.

FINSUM: A simple return to the mean-based investment hypothesis would dictate that REITs should rise, but with so many worries over rates right now, it might take some time for that to play out.

(New York)

So we are a year into the presidency of one of the country’s biggest real estate developers. However, the reality is that a lot of uncertainty looms over the housing market. Between rising rates and the new less-interest-friendly tax package, the market is facing some headwinds. But analysts say that the biggest driver right now is that the uncertainty around the tax package is finally in the rearview mirror, which is allowing deals to go through which were previously on hold.

FINSUM: Our view is that the top end of the market, say $1m+ homes, are going to struggle a bit for a few years. The reasons why being the new limited mortgage interest deductions rules, and the fact that the Millennial generation, which will drive home buying, are not very wealthy yet.

(Los Angeles)

A term which is anathema to the ears of real estate developers and landlords is once again rearing its head—rent controls. A push for localized and state rent controls is mounting across the country and the battleground appears to be in California, which is set to vote on a number of such measures. Mid-sized and large cities have been seeing double digit percentage annual rent increases for years, which has led to an incredible pushback from tenants. A number of ballot measures would give local governments across the country significant power to control rents.

FINSUM: It has been a long time since these policies were last in force in a major way, and the collective memories of their downside seems to have been forgotten. All that said, this push is a reaction to the huge investment in housing that private equity firms made following the Crisis. Since then they have raised rents aggressively, which has led to this inevitable grass roots push.

(New York)

While there has been some speculation that the US housing market may be facing a tough period ahead, new data is showing that prices might continue rising. The big worries are that rates will rise quickly, hurting mortgage demand, while at the same time, the new tax package will reduce home-buying because of the lack of deductibility of mortgage interest above a threshold. However, new data shows that housing inventory continues to sink. There are few homes for sale compared to buyer demand, and the building rate of new homes is weak. This means there is much more demand in the market than there is supply.

FINSUM: We are not very worried about home prices, especially in the lower and middle pars of the spectrum. The largest ever US generation—Millennials—is entering the key home buying period of their lives.