Daily Gains Letter

real estate

What’s Handicapping First-Time Homebuyers?

By for Daily Gains Letter | Mar 24, 2014

First-Time HomebuyersFor months and months now we’ve been pointing to seemingly obvious economic data to prove that the U.S. housing market is in trouble because of the weak U.S. economy. Those in the “know”—economists and the real estate board—have been waxing eloquence on how the weather is the main culprit behind the disappointing U.S. housing market numbers.

The National Association of Realtors (NAR) said existing-home sales in December were adversely affected by bad weather in many areas. Sales of existing homes in January were down 5.1%, reaching their lowest levels in 18 months. At the time, the NAR echoed it’s sentiment from the previous month and said the prolonged winter weather was playing a role and positive housing market activity would be delayed until spring.

Well, spring has sprung, and it looks like blaming the weather is getting a little old. Existing-home sales in February fell 0.4% month-over-month and 7.1% year-over-year to their lowest level since July 2012. (Source: “February Existing-Home Sales Remain Subdued,” National Association of Realtors web site, March 20, 2014.)

First-time homebuyers, the litmus test for how well the economy is doing, accounted for 28% of purchases in February—that’s up from 26% in January (which was the lowest market share since the NAR first started compiling monthly data). In February 2013, first-time homebuyers accounted for 30% of sales. The 30-year average for first-time homebuyers is 40%—a number both real estate professionals and economists consider ideal.

As per usual, the U.S. housing market is being propped up by those with lots of money. All-cash sales made up 35% of sales in February—up from 33% in January and 32% in … Read More

Sin Stocks Posting Impressive Gains in Struggling U.S. Economy

By for Daily Gains Letter | Mar 20, 2014

Why Sin Stocks Are Where the Money Is in This Stock MarketAs the investing adage of the day goes, “When the going gets tough, the tough get eating, smoking, and drinking.” And there’s plenty of tough economic data out there to send people into the arms of their favorite vices and sin stocks.

In a nutshell, U.S. unemployment has improved year-over-year to 6.7%, but the improved numbers are the result of an increase in low-wage-paying part-time retail jobs. The underemployment rate remains high near 13%, as does the long-term unemployed at 2.3%. And despite the soaring S&P 500, wages haven’t really budged in years.

In January, new orders for manufactured durable goods fell one percent, or $2.2 billion, to $225 billion—the third decrease in the last four months. Not surprisingly, retail sales, which account for about 30% of consumer spending, rose just 0.2% in February after two straight months of declines.

March consumer sentiment data missed forecasts, falling from 81.6 in February to 79.9—the lowest level in four months and the eighth miss in the last 10 months. This trickled down to February auto sales, which flat-lined year-over-year to 1.19 million and sat on the low end of annualized auto sales estimates of 15.34 million. Even January housing data were weak.

I realize most economists are blaming the weak U.S. economy on the bad winter weather, but I’m not so sure. And I’m certainly not alone. Even Stephen Poloz, the governor of the Bank of Canada, says it’s hard to believe that the recent economic slowdown is all due to the weather. (Source: “Loonie falls on Stephen Poloz’s gloomy forecast for growth,” The Canadian Press, March 18, 2014.)

The tough economic … Read More

What’s Happening in the Copper Market Should Alarm You…

By Sasha Cekerevac for Daily Gains Letter | Mar 14, 2014

Plunge in Copper Is a Big Warning SignThere is something going on right now in the copper market that should alarm you. Over the past week, the price of copper has plunged, recently hitting a four-year low.

Why should this matter?

Most investors and analysts are placing bets that economic growth is about to re-accelerate globally. Never before has the world been so interlinked, so we must pay attention to what is occurring internationally.

Copper is an important part of the potential for economic growth, not just because it is used in building and construction, but because it is also a major factor in the Chinese lending market, which is now showing severe strain leading to a potential debt crisis.

Remember, the last financial emergency was led by a debt crisis brought on by a housing bubble that eventually popped. High levels of debt creating a bubble are always dangerous, as the hangover is quite severe.

How does this impact economic growth for us here in America?

To begin with, we all know that the U.S. is doing relatively better than other parts of the world, but we are not exactly running at full speed. Any slowdown in economic growth—especially with a country as large as China—that is brought on by a debt crisis in that nation could severely impact our economy.

In China, the lending market is quite different than in North America, and firms have to rely on what’s called shadow banking.

Many firms in China have trouble borrowing, so they buy copper and use it as collateral. We are not talking about a small amount of money, as a shadow banking system in China … Read More

How to Profit from the Weakening Housing Market

By for Daily Gains Letter | Feb 28, 2014

Housing MarketIt doesn’t take much to get the bulls excited when it comes to the U.S. housing market. Solid new-home sales data seems to have erased everyone’s memory of the raft of negative housing market numbers that have been flowing in for months.

But first, the good news! The U.S. Department of Commerce announced Wednesday that sales of new U.S. single-family homes soared 9.6% month-over-month in January to a seasonally adjusted annual rate of 468,000, the highest level since July 2008. January’s numbers are also 2.2% ahead of January 2013 estimates of 458,000. (Source: “New Residential Sales in January 2014,” United States Census Bureau, February 26, 2014.)

While Wall Street is busy blaming the cold weather for weak earnings, the winter winds have not held back new-home sales. In fact, in sharp contrast to Wall Street’s cold weather blame game, regions hardest hit by unusually cold temperatures experienced solid growth, easing concerns of a sharp slowdown in the U.S. housing market.

Sales in the Northeast soared 73.7% to a seven-month high, sales in the south climbed 10.5% to a more than five-year high, and sales in the west climbed 11%. The only region to experience a drop in new-home sales was the Midwest, where new-home sales retraced 17%.

If new-home sales were the foundation of the U.S. housing market’s health, everything would be looking up. Unfortunately, they’re not. That’s because new-home sales represent a small segment of the U.S. housing market—just 9.2%.

New-home sales figures, because they are measured when contracts are signed, are considered to be more sensitive to weather than existing-home sales, which are tallied when contracts close. So … Read More

Why Gold Looks Good to Me in 2014

By Sasha Cekerevac for Daily Gains Letter | Jan 29, 2014

Gold Looks Good to Me in 2014Just the other day, I was talking to a friend of mine who seemed extremely cheerful. I asked why, and he said that his investments have performed well over the past few months and he saw no reasons to worry.

This is a common problem with investor sentiment; people tend to become complacent and only look to the recent past as an indication of what tomorrow will bring.

This is quite dangerous. Investor sentiment is often wrong and can be used as a contrary indicator, buying when others are dumping their stocks and taking profits when others are blissfully unaware of the changing landscape around them.

Americans need to be careful of becoming too complacent in their bullish investor sentiment, because the U.S. is not isolated from the rest of the world.

When the real estate bust and financial crash occurred here in America several years ago, the effects spread to many nations around the world, including the emerging markets.

With the Federal Reserve pushing the gas pedal on money printing here in the U.S., it has created a shock absorber to some extent, temporarily keeping global pressures at bay, especially in relation to the emerging markets.

However, investors do need to be aware that there is much uncertainty around the world. Investor sentiment for global institutions has been aware of these potential issues and is now running for the exits.

Last week this began in Asia, as economic growth appears to be slowing and reports of a financial crisis in China are beginning to grow. With the Chinese shadow-banking sector showing signs of cracking, this is creating negative investor … Read More

My Favorite Picks to Ride the Recovering U.S. Housing Market

By for Daily Gains Letter | Oct 29, 2013

Recovering U.S. Housing MarketNumbers don’t lie: the rich are getting richer, and they’re using their money to increase their U.S. housing real estate portfolios. The rest of the country, on the other hand, is getting poorer, and has been priced out of the U.S. housing market, being forced to rent the American dream.

While U.S. housing prices are still down roughly 23% from their 2006 pre-recession highs, they’ve increased 16% since the beginning of 2012. This is more than enough to price those who have the income to pay a mortgage and desire to own a home out of the market—not so much as to deter investors (institutional and individual) from aggressively adding to their burgeoning real estate portfolio, though.

In fact, many first-time home buyers are being bid out of the market because of demand from investors. First-time home buyers accounted for just 28% of purchases in September; that’s a substantial decrease over the 30-year average of 40%, and a number that real estate professionals and economists consider to be ideal. These depressed numbers are the new reality; first-time buyers made up just 28% of all purchases in August, a bit worse than the 29% recorded in July. (Source: Mutikani, L., “U.S. existing home sales fall, price appreciation slows,” Reuters web site, October 21, 2013.)

For the not-so-average American, it’s a U.S. housing boon. Investors (those who purchased 10 or more properties in the last 12 months) accounted for 14% of all residential sales in November; that’s up three percentage points both year-over-year and from the previous month. Incredibly, all-cash sales climbed to 49% from 40% in August and 30% one year … Read More

Washington’s Dysfunctions Making U.S. Housing Stocks More Attractive?

By for Daily Gains Letter | Oct 14, 2013

US Housing StocksThe best time to look at certain sectors and stocks is when investors are running for the exits. Unfortunately, the U.S. government shutdown and looming debt ceiling deadline have sent investors scurrying in every direction. Still, one area that will be negatively impacted should the U.S. government shutdown continue and the debt ceiling limit not be raised is the slowly rebounding U.S. housing market.

That doesn’t mean investors should shun the U.S. housing market and homebuilder stocks altogether; if anything, the current lull is the perfect time to take a closer look at this sector. Both the shutdown and debt ceiling will eventually be in the rearview mirror and the wheels of economic progress will sputter back to life.

According to the latest S&P/Case-Shiller Home Price Index, U.S. house prices rose 12.4% for the 12 months ended July 31, the biggest annual increase since February 2006. Home prices, which have climbed 16% since the beginning of 2012, are still roughly 22% below their 2006 pre-recession highs, meaning, there is still plenty of room to run before the U.S. housing market can say it has fully recovered.

Unfortunately, the U.S. government shutdown and fears about the debt ceiling are coming just as construction and new housing sales are beginning to show signs of life. Residential starts in August were up slightly (0.9%), with an annual pace of 891,000—a marked improvement over the April 2009 low of 478,000 starts.

There are a number of ways a long-term government shutdown would exacerbate growth in the U.S. housing market. Because federal employees are furloughed, there is no one to approve mortgages; those in the … Read More

Why the Real Estate Market Is Still a Guessing Game

By for Daily Gains Letter | Sep 27, 2013

Real Estate MarketTwo housing indicators were released earlier this week, and while the numbers seemed divergent, they both really say the same thing—that the U.S. real estate recovery is chugging along, but the current pace is unsustainable.

On Tuesday, a report from S&P/Case-Shiller showed property values in 20 U.S. cities had increased 12.4% year-over-year in July. This marked the largest annual gain since February 2006, when the market was nearing the height of the U.S. housing bubble. (Source: “Home Prices Steadily Rise in July 2013 According to the S&P/Case-Shiller Home Price Indices,” Spice-Indices.com, September 24 2013.)

On top of that, July marked the fourth consecutive month that all 20 cities in the index recorded monthly gains. However, 15 of those cities experienced slower month-over-month gains, suggesting the rate of home price growth may have peaked.

That said, it’s pretty hard to argue we’re in a housing bubble. Since bottoming in March 2012, home prices have rebounded by 21%—but they’re still 22% below their July 2006 pre-Great Recession peak.

Not so coincidentally, mortgage rates have been running in step with the U.S. real estate market and are up more than a full percentage point since May; today, a 30-year fixed mortgage rate averages around 4.5%. Erring on the side of caution, investors sent rates higher as they speculated about whether or not the Federal Reserve would begin to taper its $85.0-billion-per-month quantitative easing program.

Not only has this made borrowing more expensive, but it has also made home ownership less affordable. Those on the cusp have been rushing in from the sidelines to beat the banks’ higher mortgage rates, and in an excited … Read More

How to Profit from First-Time Home Buyers Turned Renters

By for Daily Gains Letter | Aug 1, 2013

Profit from First-Time Home Buyers Turned RentersThe road to home ownership in America may have been paved with good intentions, but the current housing market recovery shows it’s not leading to Oz. Even though home values are on the rise, U.S. home ownership, at 65%, is at its lowest level in 18 years—and for some, that’s still too high.

Since the real estate market bubble burst in 2007, a number of riskier borrowers have been squeezed out. At the same time, there are a lot of potential first-time home buyers unable to take advantage of near-record-low borrowing costs and get into the housing market because banks are wary of lending. And for a sustained housing market to take hold, first-time home buyers need to be able to actually access the housing market.

In fact, the so-called “housing market recovery” isn’t really benefiting those Washington has been pushing for. Thanks to tax credits that were made available when the Great Recession began, first-time buyers accounted for more than 50% of U.S. housing market sales as of 2009. That’s a substantial increase over the 30-year average of 40%.

The U.S. housing market has experienced some major changes since then. Today, first-time home buyers account for just 29% of sales. One could argue that first-time home buyers, typically in their 20s and 30s, don’t have enough credit history to get a mortgage. And because of stagnant wages and mile-high unemployment, they haven’t had time to build up a nest egg. After being bailed out by tax payers, banks are no longer willing to lend to those they believe are untrustworthy.

So while affordability in the U.S. housing market is … Read More

Two REITs Set to Make Big Profits Off Retirement Boom Ahead

By for Daily Gains Letter | Jun 3, 2013

Two REITs Set to Make Big Profits Off Retirement Boom AheadMaking money in the stock market is about taking advantage of opportunities. While most opportunities are short-lived, others have a much longer horizon. The American baby boomer generation is entering retirement at an unprecedented rate. This opens up opportunities for the next 20 years for investors looking to profit on sectors that will benefit from aging baby boomers.

The births of the American baby boomers started in 1946 and ended in 1964, during which time 77 million people were born. On January 1, 2011, the first of the baby boomers began celebrating their 65th birthdays; over the next 16 years, roughly 10,000 Americans will turn 65 every single day.

That represents an enormous demographic. How large? For the first time ever, the senior age group now makes up the largest part of the U.S. in terms of size and percentage, accounting for approximately 35% of the population. By 2030, the number of Americans aged 65 and up will double to about 71.5 million, and by 2050, that number will grow by more than 20% to 86.7 million. Baby boomers also have deep pockets, accounting for 40% of total consumer demand. (Source: “Resources 50+ Fact & Fiction,” Immersion Active, last accessed May 31, 2013.)

Even with all that money and time on their hands, North American baby boomers will still need somewhere to live—and somewhere to visit their healthcare providers.

A real estate investment trust (REIT) is a company that owns and operates income-producing real estate. A REIT is a great way for individual investors to take advantage of the developing real estate trends without having to actually own real estate…. Read More

Home Prices Up, Housing Market Hot Again: Can It Last?

By for Daily Gains Letter | May 31, 2013

Home Prices Up, Housing Market Hot AgainThe headlines are flashing: the housing market is in recovery mode. It isn’t very uncommon to hear that the real estate market in the U.S. economy is hot once again. No doubt, the reasons for all this optimism towards the housing market are pretty strong, as well.

The S&P/Case-Shiller index of home prices in the U.S. economy increased 10.9% from March of 2012 to March of 2013. This was the biggest increase in U.S. home prices since April of 2006. (Source: Woellert, L., “Home Prices in U.S. Rise by Most Since 2006 in March,” Bloomberg, May 28, 2013.) The chart below shows the change in the S&P/Case-Shiller index over the last eight years:

S&P Case-Shiller Home Price Chart

Chart courtesy of www.StockCharts.com

Similarly, the new-home sales data in the U.S. housing market showed better-than-expected results. According to the U.S. Commerce Department, new-home sales in April increased 2.3% to an adjusted annual rate of 454,000, compared to 444,000 in March. From the same period a year ago, new-home sales edged higher by 29% and new-home prices increased 15% in April of that year. Economists surveyed by MarketWatch expected the new-home sales number to be 430,000. (Source: Goldstein, S., “April new home sales up 2% to 454,000,” MarketWatch, May 23, 2013.)

Moreover, existing-home sales in the U.S. economy edged higher by 0.6% in April and registered an adjusted annual rate of 4.97 million, compared to 4.94 million in March. Compared to a year ago, existing-home sales were up 9.7% from April of 2012, when they totaled 4.53 million. (Source: “April Existing-Home Sales Up but Constrained,” National Association of Realtors web site, May 22, 2013.)

On top of … Read More

Why There’s Life in Real Estate for Retirees

By for Daily Gains Letter | Mar 20, 2013

200313_DL_whitefootIn the aftermath of the housing bubble that ran from 2000–2006, U.S. real estate tanked, plummeting almost 35% percent from its peak levels. If you lived in Florida or Las Vegas, it was even worse.

For retirees looking to supplement their retirement investments, pensions, and Social Security with their real estate holdings, the housing crash was a brutal blow.

Hopefully, times have changed.

After years of holding the economy back, housing has been rebounding on the heels of nearly record-low interest rates, attractive prices, and lower inventory levels. In December 2012, U.S. housing prices rose to their August 2004 level. In January, 2013, sales of new single-family homes climbed to a level not seen for over four years. (Source: “New Residential Sales in January 2013,” U.S. Census Bureau web site, February 26, 2013, last accessed March 19, 2013.)

While the U.S. housing market continues to be one of the few bright spots, thanks to weak underlying economic indicators, the outlook remains uncertain. For a long-term, sustained pickup in housing, the U.S. will have to experience stronger jobs growth, fewer foreclosures, and easier access to credit. So it’s hard to say whether housing is going to move upward, downward, or sideways.

Regardless, the silver lining around the industry means retirees can, for the first time in years, look to their real estate as a legitimate source for additional retirement income. If the increases can be sustained over the long term, retirees could be the ones that benefit the most.

One of the easiest and most obvious ways for retirees to generate additional income is to leverage currently held real estate by … Read More