Rod Raynovich Says:
July 21st, 2005 at 12:40 pm
Are we at the TOP YET?
Housing stocks and bonds weaker after Greenspan testimony and Chinese currency loosening. Uncertainty arrives.
Three of our RAG advisers have called the top in real estate now. This is 3 weeks after two leading money managers gave the sell signal on housing stocks.. Also several stories have appeared over the past month on the housing bubble.However many expert money managers have lost their butts on housing shorts in 2005. Some housing stocks are up more than 10% just in July. So far everyone has been wrong on calling the top.
The Greenspan comments referred to a froth in housing but no bubble talk:
“The apparent froth in housing markets appears to have interacted with evolving practices in mortgage markets. The increase in the prevalence of interest-only loans and the introduction of more-exotic forms of adjustable-rate mortgages are developments of particular concern. To be sure, these financing vehicles have their appropriate uses. But some households may be employing these instruments to purchase homes that would otherwise be unaffordable, and consequently their use could be adding to pressures in the housing market. Moreover, these contracts may leave some mortgagors vulnerable to adverse events. It is important that lenders fully appreciate the risk that some households may have trouble meeting monthly payments as interest rates and the macroeconomic climate change.”
The market reacted today 12 noon PDT with the following:
10 Year Bond yield UP to near 4.30%
Housing stocks down 2-3%
REITS down ~1.5% IYR at 65.66
GOLD up 3+to 425
One money manager Sam Lieber of the Alpine US Real Estate Fund (EUEYX) says ,”The housing sector may slow, but the economy is more important than interest rates as an important factor. Public Cos. are taking over the housing market (due to access to capital).”
On Tuesday data released on housing starts were 2 million units or flat but permits were up 2.4%.
Regional trends and demographics dominated with the South starts up 11.4% while other Regions were down.
Apparently boomers are still buying second homes.
One report from a RAG associate:
….”yeah I agree. All it takes for housing to deflate is for the flippers to be driven out of the game. Folks who live in their houses can stay there but there are so many who own 2nd and 3rd homes on speculation.
It was interesting, I was down on the Outer Banks in N.C. last week and it was clear that 1,000s of homes have been built in the last 5 years. Just acres and acres of them. We went to an open house out of curiousity. The guy was pitching it as an investment property. It was a modest 5-Bdr $1.29M affair in the Four Seasons development. Not even oceanfront or even an ocean view. No pool. The annual rental income was $50,000. With a 6% mortgage and about $12K in taxes + fees, you are talking about positive cash flow only if you paid about 70% up front. I asked him how it could possibly work as an investment if you were to put, say even 40% down, and his response was, “well, you just hold it for a year and then sell it and pocket the gain.”
I have a feeling that this is the logic of most real estate transactions these days. That just doesn’t work.”
Investech.com is more alarmist with a chart that shows their housing index(up 700% in five years) coinciding with the real estate bubble.
Some other bubbilicious charts. With these kind of returns you could have made 3x or more without mortgages, just broadband and a MAC.
se charts TOL and BMHC