Displaying items by tag: reits

(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)

There have been some serious warnings about real estate from reputable sources lately, but not much data to support them. To this point, most fears have been centered around how rising rates might hurt the market, but none of that had emerged in the data, until now. A new US housing report has just showed that sales of existing US homes fell 2.5% in April. Low inventory and higher prices seem to be putting a dampening effect on buyers, says the Wall Street Journal.

FINSUM: This is a worrying stat for us, and its importance is elevated by the fact that the figure comes from April, which is part of the all-important spring home-buying season. The next few months of data will be very important.

(New York)

Something very curious is going on in the REIT industry—the funds are liquidating their holdings. REITs have not performed well over the last couple of years, which means many share prices are quite low relative to the market. This means they also frequently trade at a discount to the value of their underlying holdings. In response, many REITs are selling off their property holdings to make a return and bring in cash instead of issuing new shares. REITs have fallen victim to rising interest rates, but are not, in general, using the cash injections to pay down debt.

FINSUM: Considering the position they are in, this does not seem like an unwise move. It also likely signals there is a big buying opportunity in REITs if only you can stay in them long-term.

(New York)

So the stock market is just about back where it was a month and a half ago at the bottom of its correction. This time the flare up has been driven by worries over a looming trade war being set off by the US and China. However, this recent rise in volatility has given insight into which stocks appear to be winners if a trade war does ensue. The answer is stocks that act like bonds, or yield stocks (alongside Treasuries and gold, the old safe haven standbys). Utilities and REITs have performed well, as have tobacco stocks, given that all three have strong yields to offer.

FINSUM: It is funny that just a few weeks ago everyone was worried about a bond bear market, and now everyone is pouring into fixed income and yield stocks.