iShares Dow Jones US Real Estate (IYR)

All Comments on IYR

  • commenter
    flyoverman
    Aug 23 11:53 AM
    Missing From All the Credit Crisis Coverage: A Realistic Assessment of Where Home Prices Are Headed [view article]
    Your sampling is limited. Emphasizing the high-appreciation urban real estate locations skews your presentation. There a lot of people that live in cities like Dallas, Houston, San Antonio, Detroit, Philadelphia, etc., etc. that aren't on the 10 city composite. That doesn't even include a lot of American who live outside of large urban "fly-over" country. Yes, real estate will "bust" in some place, but "boom" in others simultaneously. Please provide a more thorough analysis before making your conjecture. Reply
  • commenter
    johnlewing
    Aug 22 01:17 PM
    Missing From All the Credit Crisis Coverage: A Realistic Assessment of Where Home Prices Are Headed [view article]
    as usual simple logic is the way to understand the situation:

    1. asset value is based on cash flows (after-tax rental cash flows is a good starter) discounted at an appropriate rate to reflect the risk of the cash flows.

    2. clearly houses in urban areas are overvalued on this basis, and probably substantially.

    3. however, the comparison to prior periods is very tricky as general interest rates and interest rate expectations have come down over the past decade or two. in other words it's not an apples to apples comparison on the discount rate....whereas the cash flow estimates are probably reasonably comparable as long as inflation is considered.

    bottom line is that they have to correct (and obviously have begun that process) but how fast and whether much of the loss will be "real" loss to inflation over time or a quicker nominal loss process.....nobody knows.

    my guess is that prices will fall 10 % per year for a couple more years and in the end it will be nearly a 35% real loss and a 25% nominal loss on values.....

    there will also be tax revolts throughout the land as the municipalities and townships hang on to their phony assessments and keep spending money foolishly and lavishly, especially on their own pensions.

    johnny b. dog     Reply
  • commenter
    Lee Carlson
    Aug 21 03:36 PM
    Getting the Real Estate Crisis Right [view article]
    Christian,...You are the first in a long time to really get it right !!! I see so much BS about the housing market that it's mind boggeling ! But You have it right on all points ! Makes me wonder what the other "experts" have been reading. All the talk about "corrections"... and median prices as compared to incomes is simply analyzing and not looking at facts ! I have been in the R.E. Business for over 25 years and you wouldn't believe how many times I have been asked by people to "get them out of a contract" that they signed and put down a good deposit ! I keep telling investors to "Do the math".
    but it seems that most Investors have a Herd mentality,...follow the friends actions , even if it's a dumb idea ! Thanks, LC
    Thanks for writing ! LC     Reply
  • commenter
    David Levin
    Aug 21 02:20 PM
    My Website
    Missing From All the Credit Crisis Coverage: A Realistic Assessment of Where Home Prices Are Headed [view article]
    Why Florida house prices must continue to go lower

    It is all about affordability

    The housing market will force equilibrium to be achieved. House prices must come down to accomplish that if only for the fundamental reason of affordability.

    The Florida market enjoyed a spectacular coming together of cheap, accessible, plentiful mortgage money, speculator’s irrational exuberance and under priced carrying costs. Prices soared and mortgage lending became increasingly exotic to accommodate the increases. The home purchaser focused on the monthly payment and mortgage loans were structured to maximize that. However, active hurricane seasons launched a series of exponential increases to insurance costs. Massive tax increases based on the market value of the house lagged by as much as a year, so many did not fully incorporate this added expense to the monthly carry. Often purchasers deluded themselves into believing a refinance into a cheaper new introductory rate would permit them to finance the added expense at little or no effect to the monthly payment.

    Incomes did not keep pace with the inflation experienced in house prices. With the value of houses now deflating, refinancing is not a possibility. The higher levels of insurance and taxes have added significantly to the monthly carrying costs of a house and appear to be permanent. Mortgage loan interest rates do not appear to be substantially decreasing. The only remaining moving part in the equation is the price of the house.

    It is all based on affordability. Affordability is based on the general wage levels of a market area. Substantial Tax and Insurance costs eat into the amount left to service the mortgage loan. The price of the house must come down sufficiently to bring the monthly carrying costs in line with the monthly take home pay. We still have a ways to go.
    From Real Estate Analysis and Insight at
    DavidLevin.org     Reply
  • commenter
    Tony Rand
    Aug 21 02:09 PM
    Getting the Real Estate Crisis Right [view article]
    Maybe you should call me Chicken Little. Example: The affordability index in 27 major metropolitan counties shows that borrowers left without the ability to lie about their income/assets nor the ability to accept a high risk negative amortizing mortgage cannot afford to own residential real estate. Realistically, all home price gains from 2003 will most likely be wiped out. So in many areas we will see home value declines as high as 50% to 60%. Most areas will be in the 20% to 30% range. Any area in which normal home price appreciation has been realized from 2000 will maintain a great degree of normalcy with a 1% to 7% reduction in values. This is my fifth market cycle, but for myself (and everyone else who has been in this business a long time), the characteristics of this perfect storm will bring more damage than ever expected...compare this fiasco to the S&L scandals of the 1980's and then add appropriate inflation factors for your region. At the end of the day, the recent inverted Treasury yield curve guarantees our recession. How the legislature, GSE's, HUD and all of the mortgage servicing entities handle recasting adjustable rate mortgages and loss mitigation of repayment impairment will only soften the overall blow to the existing market...not eliminate it altogether. Reply
  • commenter
    Dabbio
    Aug 21 01:55 PM
    Getting the Real Estate Crisis Right [view article]
    I still see single sector thinking dominant. Look, consumption and employment are critically tied into housing. It was housing, cheap Chinese imports, and easy consumer credit that fueled the consumption binge. Now, we are going to see it work in reverse. (Except, let's hope the Chinese don't raise prices.) Even if people don't sell their houses, they are going to HAVE to cut back on consumption to make the higher payments. This is going to seriously impact profits and employment. And then people are going to HAVE to sell their houses. See where this leads? Reply
  • commenter
    Christian
    Aug 21 12:40 PM
    Getting the Real Estate Crisis Right [view article]
    We all know real estate is cyclical, and most know that this cycle is nothing anyone has seen before. I'll agree with Malkiel - magic has been rampant (I'm here in SoCal), and right now (and always has been), it is governed by simple SUPPLY AND DEMAND.

    Fundamentally, what changed to cause the big run up? I don't think there was a massive "religous revolution" that 5-6% of the population all decided within a few years time that being in a house was the place to be. Something that this nominal percentage (4 million households?) hasn't even devoted a passing thought to in the last several decades. Low interest rates, and the classic: I gotta buy - housing's going nowhere but up. Supply was ramping up, but demand was enormous, the "next big thing."

    In its nascent stages, it was quite fun. But as the prices ascended out of reach of pretty much everyone, more people had to resort to adjustables, so-called "liar loans", and (gasp!) option loans. I'm not sure why the comment was made about the U.S. being "different" with regards to adjustables. Many of my relatives still can't fathom why I'm planning to put 20% down (on a 30yr fixed) on my next home purchase (it won't be anytime soon).

    Now the party's over, foreclosures are up, interest rates are up, and lending has pretty much ground to a standstill. Add to this mix people who we expect HAVE to sell their home (relocation, job loss, illness, etc.), we've got a very different supply/demand relationship.

    What I submit is that we do have a correction, and this is in absence of an outright recession. Home values are coming down, and yup, it'll take some time. I don't think we'll reach huge levels of depreciation (maybe in some of the "bubble" markets), but there needs to be a reckoning between what's available, and what people want or can buy.

    One more thing: a house shouldn't be considered an investment - maybe a commercial building is. In the past several years, yes - plunking down several thousand a month on a vacant place for 10-20% annual growth may be a nice "investment."... But in the "norm" of recent decades past, a couple of thousand a month for an ROI that keeps in line with inflation ain't an investment - it a place you call "home."     Reply
  • commenter
    Efrain Rojas
    Aug 21 11:47 AM
    Missing From All the Credit Crisis Coverage: A Realistic Assessment of Where Home Prices Are Headed [view article]
    Even in a tight market like Los Angeles where rents have zoomed up in the last five years, rental income does not even come close to covering the cost of a mortgage. The so called experts in the media and business do such a deplorable job of anticipating obvious train wrecks coming down the tracks such as this credit crunch that it is ill advised for anyone to defer to their opinion. Anecdotal observation, based on the people I know and encounter everyday, suggests that the worst is still to come. When illegal immigrants without even a valid Social Security number can borrow $300,000 for a dumpy house in a bad neighborhood, common sense tells me that a crappy house is not worth $300,000.You would in fact have to pay me to live there.

    Even if you could live rent free, most average income earners would find it impossible to amass $300,000 over ten years. Is it realistic to expect average earners to amortize such a large nut over 30 years? That is just not realistic.     Reply
  • commenter
    johnhhaskell
    Aug 21 11:22 AM
    Missing From All the Credit Crisis Coverage: A Realistic Assessment of Where Home Prices Are Headed [view article]
    especially when you consider that average wages have increased nowhere near 100% in the past decade. In fact Joe Public's paycheck is not even keeping up with inflation (see today's NYT for detail).

    The only thing that has changed is the financing arrangements. Those are now going back to what we had before.

    Then the only difference will be people's fond recollections of how they used to be "rich."

    I believe that a 50% decrease in NV, FL and AZ is basically guaranteed.     Reply
  • commenter
    Malkiel
    Aug 21 11:11 AM
    Missing From All the Credit Crisis Coverage: A Realistic Assessment of Where Home Prices Are Headed [view article]
    An article elsewhere today pointed out the necessary relationship between median income and average housing prices. Unless income steadily increase in the next 3 years there will need to be a reversion of asking prices to the range of affordability. Only funny mortgage products were allowing people of ordinary means to control such expensive housing and those products have disappeared from the market... Reply
  • commenter
    Malkiel
    Aug 21 11:05 AM
    Getting the Real Estate Crisis Right [view article]
    I came to the same conclusions about income as your report--common sense says that selling prices of homes in an area must basically be within a range reachable by the median income. While people can stretch the safe limits in order to sacrifice for a nicer place, the limits are finite. A person with an income of $50,000, the current national median for a single wage earner, can reach to 250,000 instead of the theoretical safe limit of $125,000 and a couple can reach to 350,000; after that, only mortgage magic can put them into a $500,000 or $700,000 house, and we now know how shaky magic can be. Given those numbers I would expect massive depreciation of McMansions built on speculation, and a re-adjustment of mid-range prices down to the mean. If owners who are upside-down on mortgages think the market will recover they tend to stay in the house and stick it out, which slows down market depreciation, but if the loss is too high they may voluntarily walk away, helping knock prices back to the mean. We'll see how that plays out... Reply
  • commenter
    long time
    realtor
    Aug 21 10:15 AM
    Missing From All the Credit Crisis Coverage: A Realistic Assessment of Where Home Prices Are Headed [view article]
    30 to 50% is not unrealistic in Palm Beach County Florida. That's what we are seeing right now! Reply
  • commenter
    mylittlebutt
    ercup
    Aug 17 11:40 AM
    35 Years of Yield Spreads: REITs vs Treasuries [view article]
    Great post - much more insightful than you brief post earlier - thanks for the extra effort Reply
  • commenter
    Richard Shaw
    Aug 17 07:01 AM
    My Website
    35 Years of Yield Spreads: REITs vs Treasuries [view article]
    The WisdomTree international ETF (DRW) is 43.19% non-REIT (contains real estate management and development companies), has 222 holdings, pays 4.48% dividend yield,has 75% of its assets in four countries (Australia, Honk Kong, Japan and Singapore), and relative to the Dow Jones Real Estate Index provided 2+% more return for 6% more standard deviation (volatility). Reply
  • commenter
    ikkyu
    Aug 17 04:47 AM
    35 Years of Yield Spreads: REITs vs Treasuries [view article]
    Thanks for the extra data! Please continue to keep us abrest of situation. I think it is an interesting perspective, but i am not sure how it compares to say NAV analysis (to be sure they may recommend similar buy points). Do you just work with it as an asset class, or do you preform other analysis for specific companies?

    It seems that the new wisdom tree dividend weighted global real estate ETF would be somewhat inline with your opinions.

    Nice posts. Cheers from Osaka,
    john     Reply
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