Numbers 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
The 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
For the last five years, the U.S. has relied on quantitative easing, one of the most unconventional monetary policies, to kick-start its economy. By printing off trillions of dollars and increasing the money supply on the back of artificially low interest rates, the government is hoping financial institutions will increase lending and liquidity.
Will it work? Not if history is any indication.
On December 29, 1989, during the heyday of the Japanese asset price bubble, the Nikkei Index hit an intraday high of 38,957.44, capping off a decade in which the index soared more than 500%. Despite those dizzying heights, no one could see what the next 25-plus years would bring.
Over the ensuing decade, the Nikkei continued to slide. To shore up the economy, the Bank of Japan held interest rates near zero and had, for many years, claimed quantitative easing was an ineffective measure.
In March 2001, the Bank of Japan unveiled its first round of quantitative easing. It didn’t take, and since then, Japan has initiated 11 rounds of quantitative easing, dumping trillions of dollars into the markets. Instead of stimulating the economy, it has been saddled with a negative real gross domestic product (GDP) growth rate and record-low interest rates.
By late October 2008, the Nikkei hit an intraday low of 7,141—an 80% loss from its 1989 highs. While it rebounded in 2013 and is currently sitting near 14,170, it’s still down more than 63% since the halcyon days of the late 1980s.
After a quarter century, quantitative easing and record-low interest rates are a regular part of Japan’s economic diet. Thanks to uncertainty in the … Read More
After a serious pullback in May, is it time for income-starved investors to reconsider real estate investment trusts (REITs)? Or will America’s favorite sugar daddy, Federal Reserve Chairman Ben Bernanke, tease investors with ongoing threats of tapering?
The North American REIT bull market was stopped dead in its tracks on May 22, after Bernanke hinted the central bank might begin tapering its massive $85.0-billion-per-month government bond-buying program.
By being the major purchaser of U.S. government bonds, the Federal Reserve has been able to keep interest rates artificially low. Tapering its bond-buying program would mean, in theory, that interest rates head higher. In an effort to protect their retirement portfolio, investors are selling stocks they see as being vulnerable to rising interest rates.
REITs are at the top of the list. That’s because REITs are in the business of purchasing property and higher interest rates on the heels of financing translates into lower profitability.
While artificially low interest rates are a godsend to REITs, they’re a nightmare for average Americans looking to generate retirement income on their long-term bonds.
Interestingly, since May and the ensuing market volatility, the Federal Reserve has said that inevitable tapering would not necessarily result in higher interest rates. That’s more good news for REITs—and more bad news for income-dependent investors.
Unfortunately, many REITs have failed to fully recover from the Federal Reserve’s May 22 comments. Those depressed prices have opened up a door of opportunity for savvy investors. That’s because, when prices for REITs (and dividend stocks) fall, yields rise. The volatility means investors can pick up quality REITs at depressed prices with higher returns.
REIT … Read More
The 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
Making 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
Not everyone thinks the U.S. economy is still in trouble. In spite of high unemployment, a decrease in consumer confidence, a drop in U.S. retail sales, and a downward revision of the U.S. gross domestic product (GDP) growth to 1.7%, there are a number of well-heeled economists predicting nothing but good times on the horizon.
According to a recent Bloomberg survey, GDP is expected to climb at an annualized rate of three percent in the first quarter, versus the projected two-percent gain in March and the 1.6% gain that was forecasted for this quarter in December. (Source: Torres, C. and Saraiva, C. “Economy Bears Turn Bulls Seeing 3% U.S. GDP Few Saw in 2012,” Bloomberg, April 12, 2013.)
Wall Street’s well-intentioned bankers are in agreement. Morgan Stanley’s chief U.S. economist, Vincent Reinhart, raised his estimate from 0.8% in December to three percent. Brian Kasman of JPMorgan Chase & Co. increased his forecast from one percent to 3.3%.
Why the exuberance? One of the leading indicators of economic growth, they maintain, is the healthy housing market. New home construction in 2013 is expected to total 970,000, up from 780,000 in 2012 and the largest number since 2007, just before the Great Recession. Existing home prices are also up; February prices were up 11.6% year-over-year, the largest increase since November 2005. (Source “Existing-Home Sales and Prices Continue to Rise in February,” Realtor.org, March 21, 2013.)
According to a Fannie Mae study, 48% of Americans think home prices will rise in 2013; only 10% think they will slide. (Source: “Consumers’ Positive Housing Attitudes Withstand Fiscal Concerns; Many Indicators Holding At or Near All-Time … Read More
It’s time for all stock market investors to re-evaluate their portfolio risk.
If a new bull market happens to develop, it’s easy to jump on the bandwagon. But with so much uncertainty and risk out there—risk that is 100% beyond your control—equity investors need to be safe.
There is always room for speculation with play money, but when it comes to money being used to save for retirement or dividend income being used while in retirement, capital preservation is absolutely key.
Utility stocks immediately come to mind when I think about capital preservation and the stock market. This is a sector that is often used to generate income for those who are in retirement.
Surprisingly, some utility stocks have actually been very good wealth creators in terms of capital appreciation. Like always, which individual companies you own matters. This is why the returns from mutual funds can be so mediocre. Diversification works, but always has a cost.
Looking at utility stocks, trends are important—trends in population growth, migration, or in things like power usage from industrial customers. Just look up a utility stock index and the stock market charts of those companies. You can see which companies are the standout players, and why they are because of migration trends in demand.
Another stock market sector that offers some safety and the opportunity for capital gains and decent dividends is energy. But in the oil and gas business, size counts.
A company like Chevron Corporation (NYSE/CVX) has proven to be a reliable stock market performer and dividend payer. It is an ideal retirement stock. And even with the amazing growth taking … Read More
With the bull market celebrating its fifth anniversary and the Dow Jones Industrial Average reaching record levels (and erasing losses from the financial crisis), it’s not a surprise to see some investors questioning whether or not they’ve missed the boat.
For those who think they missed the recovery, it’s probably a little unnerving to consider the present market a bull market. While the markets may be performing well, the average American isn’t. Unemployment remains high, as does household debt. Gross domestic product (GDP) is essentially flat. And housing remains fragile.
Those that think they have missed out or don’t want to risk jumping back in at this late stage will have to be content with what they’re getting from the banks (0.5%) or with bonds (3.1%). Neither one is worth celebrating.
How did we get here?
In an effort to stem the economic slide of the U.S. housing collapse that first surfaced in 2005, the Federal Reserve unveiled three different rounds of quantitative easing (QE). Since 2008, the Federal Reserve has printed off trillions of dollars, and it continues to add to that number at a staggering rate each month.
But America isn’t alone. Central banks from around the world are flooding the markets with QE.
The extra dollars pumped into the economy are supposed to spur growth. But they also have the reverse effect, shrinking the buying power of each dollar, which is the driving force of inflation. While inflation is good for businesses and Wall Street, it’s bad news for interest rates and everyday Americans and their retirement funds.
If investors aren’t willing to take some of their … Read More