Displaying items by tag: rates

(New York)

The credit market taught investors a very good lesson in the Crisis (not that many of them were paid attention to). One of those lessons was that the first signs of weakness in the market should be taken seriously, as they can be indicative of a pending meltdown. This occurred in 2007 before the cataclysm in 2008. It appears to be happening again now, as both US and European credit marks are showing some fault lines. For instance, the downgrade of GE is seen as a sign of weakness very similar to what occurred with Ford and GM in 2005.

FINSUM: There has been an extraordinary credit boom since the Crisis and there are bound to be consequences. The question is what the extent of those consequences will be. The market is starting to feel a bit like musical chairs.

(New York)

The Wall Street Journal says that wealthy New Yorkers are having a hard time believing that real estate prices are falling. After a decade long boom, they have difficulty believing home prices are actually dropping. Nonetheless, they are. Anecdotes abound, especially at the high end of the market, of residents losing millions even after ten-year holding periods. The big question home owners need to be asking themselves is whether New York is a bellwether of what is coming in US real estate, or whether it is just suffering from its own idiosyncratic problems.

FINSUM: In our view, this is mostly a unique-to-NYC problem. It is a combination of oversupply (from new builds), higher tax rates, lower demand from foreign buyers, and rising interest rates.

(New York)

It would be easy to think that real estate is headed towards a buyer’s market. Inventory has been increasing, prices gains have slowed or disappeared, rates are rising, and prices are very high. However, despite all of this, many real estate experts think 2019 will still be a better year to be a seller than a buyer. The reason why is that inventory may only increase slightly, which will keep prices relatively high and not lead to massive price cuts like in the last housing downturn. A recession still looks a little way off, which could also insulate prices as the employment market stays tight.

FINSUM: We think the housing market is definitely going to see prices stay flat or fall next year, mostly because demand is falling as rates rise. However, we do agree that the bottom is not going to fall out by any means.

(New York)

Here is an interesting fact for investors—municipal bonds tend to hold up well during periods of rising rates. The underlying tax benefits of the bonds mean their demand is well insulated even in such periods. The question is where to commit capital. Well, year-end tax loss selling is creating some interesting opportunities in closed end muni funds, says BlackRock. Some funds are selling at significant discounts to the NAVs, sometimes 10% or more. These funds tend to bounce back in the new year, which is called the “January effect”. The discount to NAV allows one to gain even if the prices of the underlying assets don’t budge.

FINSUM: Closed end muni funds look like a great place for some bargaining hunting until the end of the year.

(New York)

One of the surest signs in the economy right now is that real estate is in trouble. Data coming out of the sector has been consistently weak for months and shows a clear downtrend in the housing market. Rates seem to be playing a big part of that, as demand for housing has sunk as rates have risen. That could prove one of the few brakes on the Fed’s relentless rate hike path. The fall in real estate comes at a time when the market should be surging, as unemployment is at extreme lows and Millennials are entering their peak home buying years.

FINSUM: Besides stocks and bonds freaking out, real estate is one of the areas showing a lot of weakness, and this it is perhaps one of the few aspects that could stop the Fed.