Real Estate Still A Good Buy
With the steady increase in mortgage rates and home prices, is real estate still a good investment? That is the question that many investors and prospective home buyers are asking, clearly wanting to avoid the trap of the last housing bubble.
Jonathan Gray, Blackstone’s global head of real estate thinks it is still a great investment. And he should know, Blackstone owns over 31,000 U.S. homes and is buying more.
Though many are focused on the recent rise in home prices, prices are dramatically below 2006 levels in a number of markets, Gray said. “We think they still represent good value, and the supply-demand picture there looks pretty good. We’ve only been building at about half the rate of obsolescence and population growth in terms of new starts, and that is supporting the value.”
He also stated that the single-family housing market should remain bullish for two to four years.
Blackstone Real Estate has $60 billion in total assets under management and $10 billion in capital available for investments. A portion of these assets, valued at over $5 billion, is made up of 31,000 homes in 13 U.S. markets.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) gained +129 basis points from last Friday’s close which caused 30 year fixed rates to move lower after hitting their highest levels of 2013 during the prior week. It was a very volatile week with a spread of 185 BPS between our highs and lows of the session.
We started the week off with a rally as MBS climbed off of their lows of 2013 that were caused by the prior week’s better than expected Non-Farms Payroll data.
We saw weaker than average demand for our 3 year and 10 year Treasury auctions but we did have good demand for our 30 year Treasury bond auction.
Wednesday was clearly the most interesting day of the week. The minutes from the last Federal Open Market Committee (FOMC) were released and traders were once again reminded that several of the FOMC members favored “tapering” the amount of monthly bond purchases in the near term. While it was about half of the members that favored this approached, in previous minutes it was only one or two members that favored pulling back bond purchases. This shows a growing sentiment by Fed members that “tweaking” the amount of purchases will come at some stage. The timing of it is what traders keep guessing on. And this guessing is what has been moving the markets.
MBS sold off after the release of the FOMC minutes (worse rates for you) but then rebounded after Bernanke made comments that appeared to back track on the immediacy of the “tapering”.
MBS rallied again on Friday on a weaker than expected Consumer Sentiment Index but our gains were capped by our ceiling of resistance located at our 10 day moving average.
During the holiday-shortened week, the focus was squarely on jobs data.
We had a sell off in MBS (which equals higher rates) on Tuesday as both Factory Orders and Total Vehicle sales were much better than expected (if you are building more…you are probably hiring more). MBS sold off again on Wednesday as the ADP Private Payroll report was much higher than expected and new filings for Initial Jobless Claims were a little lower than expected.
And then on Friday we received the much anticipated jobs data. The Unemployment Rate remained unchanged at 7.6%. But traders don’t focus on that number which is based upon surveys and not real data. Instead, traders focus on the Non-Farm Payroll report.
After the last two Non-Farm Payroll reports, MBS sold off in a major way which pushed mortgage rates upward. And that was certainly the case after Fridays release.
Non-Farm Payrolls were much better than market expectations (195K vs 165K) plus, both April and May were significantly revised upward. This positive economic news pummeled MBS and drove pricing downward and inversely, mortgage rates upward.
|Date||ET||Economic Release||Actual||Market Expects||Prior|
|15-Jul||8:30 AM||Retail Sales||–||0.70%||0.60%|
|15-Jul||8:30 AM||Retail Sales ex-auto||–||0.40%||0.30%|
|15-Jul||8:30 AM||Empire Manufacturing||–||3.6||7.8|
|15-Jul||10:00 AM||Business Inventories||–||-0.10%||0.30%|
|16-Jul||8:30 AM||Core CPI||–||0.20%||0.20%|
|16-Jul||9:00 AM||Net Long-Term TIC Flows||–||NA||-$37.3B|
|16-Jul||9:15 AM||Industrial Production||–||0.30%||0.00%|
|16-Jul||9:15 AM||Capacity Utilization||–||77.70%||77.60%|
|16-Jul||10:00 AM||NAHB Housing Market Index||–||51||52|
|17-Jul||7:00 AM||MBA Mortgage Index||–||NA||-4.00%|
|17-Jul||8:30 AM||Housing Starts||–||958K||914K|
|17-Jul||8:30 AM||Building Permits||–||1000K||974K|
|17-Jul||10:30 AM||Crude Inventories||–||NA||-9.874M|
|17-Jul||2:00 PM||Fed’s Beige Book||–||NA||NA|
|18-Jul||8:30 AM||Initial Claims||–||348K||360K|
|18-Jul||8:30 AM||Continuing Claims||–||2950K||2977K|
|18-Jul||10:00 AM||Philadelphia Fed||–||5.3||12.5|
|18-Jul||10:00 AM||Leading Indicators||–||0.30%||0.10%|
|18-Jul||10:30 AM||Natural Gas Inventories||–||NA||82 bcf|
I will be watching these reports closely for you and let you know if there are any big surprises:
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.