Did You Know?

DID YOU KNOW? Here is an evaluation of the US Housing market I thought I'd share with you. Naturally, this is just the opinion of an investment advisor I think is rather smart:

  • In year-on-year terms, mortgage applications for home purchases have been rising consistently since the beginning of 2019, with their growth rate now up to 7.8% YoY. 
  • This increase points to a rise in housing construction over the coming months. 
  • Given that construction investment is one of the two key variables that tend to determine the trajectory of US GDP growth - along with business investment - this, in turn, points to a pick-up in US economic growth over the 2nd half of 2019.
  • Typically mortgage applications lead housing permits by around 2 months. 
  • After long term interest rates - and hence mortgage rates - began to fall towards the end of 2018, and mortgage applications picked up, the year-on-year decline in permits has started to shrink. 
  • In the past, building permits have tended to lead overall economic growth by around 10 months, which means that if these historical relationships hold, investors have another reason to expect overall US growth to pick up in the 2nd half of 2019.
  • Rental yields remain high relative to real mortgage costs, which means most property investors can still make a profit as landlords. 
  • The decline in mortgage rates since late 2018 has significantly improved housing affordability relative to both income and rental costs in some areas, which further supports demand. 
  • Unusually for such a mature cycle, there is no housing oversupply in the US in most areas. 
  • With the pace of housing construction slower than the projected household formation rate, supply is tight by historical standards. 
  • If this trend persists, a shortage of vacant housing units relative to demand from newly-formed households could add to the pressure for increased construction investment. 
  • A rise in mortgage rates will push up the demand for rented housing and lead to higher rents. 
  • And with rents the biggest single component of US inflation measures, this will put upward pressure on inflation and increasing expectations that the Fed will tighten monetary policy. 
  • These heightened expectations should push up long term interest rates, and so mortgage rates, until eventually higher mortgage rates begin to weigh on housing construction and overall growth.
  • But this cycle could take considerable time to play out. For now, the housing market is still in the early stages of its pick-up, and with inflation expectations short of the Fed’s 2% target, policymakers are firmly in favor of rate cuts. 
  • As a result, it is likely to be well into 2020 at the earliest before the housing market begins to shift again.
DID YOU KNOW? In a recent survey of 1,000 people who said they were planning to buy a home in the next 12 months the #1 top feature they sought was a garage, cited by 28.2% of the respondents. 2018 Census survey data found that 68.2% of new homes larger than 5,000 square feet had space for three or more cars. (WSJ)

DID YOU KNOW? The dollar volume of homes purchased by foreigners from April 2018 through March 2019 dropped 36% from the previous year, according to NAR. Foreigners bought 183,100 properties ($77.9 billion), down from 266,800 properties ($121 billion) a year earlier. The combination of the strong Dollar, tighter monetary controls in China, trade wars, less confidence in the US economic future based on cyclical trends and falling prices in areas, and negative political rhetoric contributed to this dramatic fall. Chinese and Canadian buyers made the most purchases. (CNBC)

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