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Albert Sung is the author of Correlation Economics, monitoring breaking economic news on a day to day basis. He started investing in 2008 because of the economic crisis and holds a masters degree in chemical engineering. Previously, he worked several years as a process engineer at Ashland, a... More
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Correlation Economics
  • US Real Estate Is A Bargain 2 comments
    Feb 21, 2012 4:32 PM | about stocks: IYR

    On 20 January 2012, the National Association of Home Builders showed confidence in the housing market rose for a fourth month in January to the highest level since June 2007.

    There are many reasons why I follow Marc Faber's market outlook and this is one of them. He is mostly right in his predictions.

    A few months ago, Marc Faber told us that US real estate was a bargain. And look what happened, the housing market index improved. Housing starts also improved more than forecasted.

    Housing Market Index

    As a result the iShares Dow Jones US Real Estate (NYSEARCA:IYR) has been doing quite well over the last years.

    iShares Dow Jones US Real Estate

    There has been evidence of houses in the US with multiple bedrooms, swimming pools, etc... that can be bought for only $US 150000. That is a real bargain if you compare that to where I live (Belgium), where you can only buy a medium sized appartment for $US 200000.

    I don't recommend buying US real estate as I know interest rates in the US will go up. But compared to other countries (housing bubble in Belgium), real estate in the US is certainly not overpriced.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Themes: real-estate Stocks: IYR
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  • User 341510
    , contributor
    Comments (5019) | Send Message
     
    The March Case Shiller Home Price Index is out, showing that the fall in home prices continues unabated, paring -2.6% on a YOY basis. Detroit delivered the biggest drop, down a shocking -4.4%, followed by Chicago (-2.5%), and Atlanta (-0.9%). But 14 out of 20 markets managed increases in prices. The national index is still declining, but at a slower rate. Given that this indicator lags real time by about three months, is there something going on in housing that we should be anticipating?

     

    Don’t get your hopes up and rush out and place a deposit on a new home. I think that the strength that we are seeing may be only a short term anomaly of the marketplace. So much hedge fund and private equity money poured into the foreclosure market recently that we suddenly ran out of inventory. Up to 60% of recent home sales have been in the foreclosure area. This explains the sudden pop in the average cost of homes sold.

     

    These funds have set up local management companies to rent out properties and are soaking up 1,000 homes at a throw, looking to sit on them for a decade until the demographic headwind turns to a tailwind. They are encouraged by negative real interest rates, the 30 year mortgage now plumbing an unbelievable 60 year low of 3.75% that made this investment a no brainer for the patient and deep pocketed. The goal is to eventually securitize these holdings and sell them for a premium.

     

    We are not by any means out of the woods. Pending home sales plunged by 5.5% in April, and March was revised down sharply. The west showed the steepest decline, down 12%. The banks also have a seemingly limitless ability to produce new foreclose inventory.

     

    The demographic headwind is still at gale force strength, as 80 million baby boomers try to sell houses to 65 million Gen Xer’s who earn half as much money. Don’t plan on selling your home to your kids, especially if they are still living rent free in the basement. There are six million homes currently late on their payments, in default, or in foreclosure, and an additional shadow inventory of 15 million units. Access to credit is still severely impaired to everyone, except, you guessed it, the 1%. Many deals fall out of escrow at the last minute over appraisal issues which fail to meet the banks’ new, more demanding requirements.

     

    I think the best case that can be made for housing here is that we may finally be coming into an uneasy balance that sets up a bottom for prices which we will bounce along for five to ten more years. This has been made possible by the arrival of an entire new class of buyers, the opportunistic hedge funds.
    -
    The Mad Hedge Fund Trader
    1 Jun 2012, 09:20 PM Reply Like
  • Philip Gusterson
    , contributor
    Comments (16) | Send Message
     
    "80 million baby boomers try to sell houses to 65 million Gen Xer’s who earn half as much money" That's a tide that is tough to swim against. Your comments reminded me of Japan's bubble creating the need for multi-generational mortgages.
    28 Nov 2012, 09:34 PM Reply Like
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