Displaying items by tag: real estate

(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.

(New York)

The US stock market had a stellar 2017, with S&P 500 soaring 21.8% in the year. However, while still rising, REITs lagged far behind at just 8.7%. This year, the bad news has continued, with stocks overall up 6% and REITs down more than 2%. The underperformance has led to a debate amongst REIT managers as to why times are rough. Some think that it is because of the view that we are in a rising rate environment and the perception that there is a coming surge in new office buildings, apartment complexes, and storage units. Others, though, think that REITs are simply being forgotten because the big party has been in tech shares.

FINSUM: We do not think REITs are being forgotten, we just think they are getting less attractive because the both the macro cycle (higher rates coming) and their industry cycle (there is more inventory now) are shifting.

(New York)

Some analysts are growing increasingly wary of the real estate market as valuations continue to rise higher. Now, more fringe signs that the market might be getting toppy. A new practice is being favored by Wall Street that looks like a sign of froth—so-called “drive-by” valuations. The practice involves local real estate agents driving by properties to do valuations at glance. Much cheaper than traditional appraisals, they were outlawed for use in regular mortgages after the crisis. However, at the institutional buying level, they are still allowed and thriving. The Wall Street Journal sums up the scale and shoddiness of the practice best, saying “Now these perfunctory valuations abound, underpinning tens of billions of dollars of home deals. Sometimes the process is outsourced to India, where companies charge real-estate agents a few dollars to come up with U.S. home values by consulting Google Earth and real-estate websites”.

FINSUM: This is an absolutely terrible idea, and is exactly the kind of pooling practice that leads to dangerous buildups. Foreign companies doing US home valuations with Google Earth? Sounds like a recipe for disaster.