Real Estate Advance Indicators

Most of the commonly used real estate indicators are "interesting" but what do they actually tell you? Nationwide data such as new and existing home sales combine unrelated market conditions. For example, there is very little correlation between Detroit, Phoenix, Houston or San Diego. Mixing up all these statistics is called a “national average”, which may be useful for glossy reports but is of no practical use in real life.  Furthermore, housing-related  data tend to report the past and have little predictive value for the future.

In order to see what is ahead, customized indicators are often necessary. Good data is typically localized to very small markets. Sometimes these localized indicators may be applicable to other markets, often they are not. If you are interested in, say, Las Vegas, there is very little need to understand market conditions in Atlanta. Back in the subprime era, around 2005 or 2006, I devised a few indicators to track the San Diego market. I first started following the percentage of vacant listings as an indicator of excess supply. I also looked at short sale and REO prevalence as an indication of imminent market collapse. Those indicators were invaluable in trading the subprime lenders who are no longer in existence.

 

Real estate is far more confusing today, as a result of government and Fed intervention. Are we at a bottom? Are we well on our way to recovery or are we blowing up another bubble? Since the announcement of QE infinity back in September of 2012, the Fed has purchased $335.5 billion worth of RMBS, at an annualized rate of $872 billion. How do we measure the effects of these unprecedented "throw-money-at-it" strategies?

At the moment, I am watching two indicators which should give us a hint regarding future market conditions:


1. Mortgage Rates.  This is a very easy indicator to follow. Mortgage rates are posted daily. The Mortgage Bankers Association reports weekly loan application estimates.  Combining the two, we should be able to see if “QE” is successful in keeping rates low, and the effects on the mortgage market. The following chart is available daily at the
Mortgage News Daily website. By the way, MND is an excellent source of industry related information from the ground level.

 


 

rate vs apps

Mortgage rates versus applications – click for better resolution.

 


 

I believe that if mortgage rates remain stable and fluctuate in a tight range, the stimulating effect of the low rate will be over and loan applications should fall gradually. If it they don't, then I would call it a very bullish signal. On the other hand, if rates start to go up, loan applications should drop abruptly, especially for the refinances.  Once again, if the applications rise anyway, I would consider it a very bullish signal. Finally, the last scenario is for rates to fall, with or without new QE efforts from the Fed, and loan applications to  drop as well. That would be so bearish that we may well see a repeat of the Lehman collapse.


2. Single family vacancy rate.  This is a far more difficult indicator to follow, since no one has ever collected these data. The Federal Reserve has some type of a number in its quarterly Z.1 Flow of Funds Accounts but it is hopelessly outdated and meaningless for specific markets. I may have to rely on unquantifiable surveys or other anecdotal observations for this indicator.

Using Las Vegas as an example, during the last four months, there were 17,254 sales. Almost exactly half of those were sold to investors while just over 50% of the transactions were for cash. Vegas is a second home market, so a number of these absentee buyers may have no intention of ever renting out their purchases. However, according to Dataquick:

 

“There were 44 buyers in December 2012 that each purchased three or more homes, but only eight of them bought 10 or more. Combined, the eight buyers who purchased 10 or more homes in December 2012 acquired 185 homes, or about 36 percent of all homes bought by multi-home buyers. In December 2011, two purchasers bought more than 10 homes, buying a total of 38 properties.”

 

How many of these purchases are flips? The current market condition is simply not strong enough to make flipping profitable, especially with such high volume. Therefore, there could be over 1,000 single family homes added to the rental pool every month if this pace continues, maybe even more. How many can Las Vegas absorb?  Here is the problem, there is no source for consistently reliable data so we have to rely on rough estimates, using what is available. Single family rentals may be handled by a real estate broker, a professional property manager or simply by a sign in the front yard put up by the owner. According to this Realtor's website, there are 4,782 single family homes, respectively condos for rent in Vegas, not counting apartments. That is a lot of rentals for a population of just over half a million.

Similarly, investors are purchasing about 30% of the Southern California market with cash transactions reaching 35% in December. In what is perhaps the hottest market of all, Phoenix, investors are buyers in about 37% of the  sales, while cash transactions are now over 40%.

Even though the demand for single family rentals should be rising as a result of economic conditions and demographics, this demand is finite. If the price of gasoline is lower, consumers may drive more. For housing rentals, if the rent is lower, renters may rent a bigger house, but still have no reasons to rent two or three houses. In my opinion, the current demand for single family rentals is far below the current pace of conversions from owner-occupied homes to rentals. Will bulk investors cannibalize each other by lowering rent, hence not meeting their yield projections? Will bulk investors stop buying, or will they keep going as long as OPM* is available?

In summary, the combination of investor purchases and mortgage rates should continue to dictate market conditions in the immediate future. I believe both are unsustainable, but just like with the subprime bubble, it can take a while before funds are exhausted from the bulk buyers and QE is proven to be ineffective in keeping rates low. By keeping an eye on the above indicators, we should have some advance signal that should tell us if the recovery is real or a new bubble.

 

* for the uninitiated: “OPM” = “other people's money” [ed.]


 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

One Response to “Real Estate Advance Indicators”

  • daddy warbucks:

    Just when you thought real estate was begining to re-bound, got property?

    “Additional costs will be added to how new homes are built, whereas the sales of older homes can be stopped in their tracks until they meet stringent government codes.”

    “The new federal EPA, HUD and DOE home regulations filter down to local inspectors who are required by law to impose them or fail the home inspection. Unnecessary and unreasonable code can be imposed on homeowners who find they “can’t fight code.” There is virtually no appeal.”

    “…the Environmental Protection Agency will have power to force many homeowners to virtually rebuild their homes to meet stringent environmental requirements before they can sell them. Living in a house that does not meet the EPA’s “green” regulations for roofing, windows, doors, insulation or heating and cooling systems will be slapped with fines. Electrical companies are now installing “smart monitoring systems” to track usage of energy by residents.”

    This is part of a much bigger plan, when thousands of people are forced to ‘walk away’, and that includes the hedge funds like Blackstone that have been buying thousands of single family homes, the federal government will ‘have no choice’ but to seize the properties (Agenda 21). IMHO

    Homeowners vs. EPA Home Invasion

    Posted: 11 Feb 2013 04:02 PM PST
    By: Sharon Sebastian

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • How to Stick It to Your Banker, the Federal Reserve, and the Whole Doggone Fiat Money System
      Bernanke Redux Somehow, former Federal Reserve Chairman Ben Bernanke found time from his busy hedge fund advisory duties last week to tell his ex-employer how to do its job.  Namely, he recommended to his former cohorts at the Fed how much they should reduce the Fed’s balance sheet by.  In other words, he told them how to go about cleaning up his mess.   Praise the Lord! The Hero is back to tell us what to do! Why, oh why have you ever left, oh greatest central planner of all...
  • India: Why its Attempt to Go Digital Will Fail
      India Reverts to its Irrational, Tribal Normal (Part XIII) Over the three years in which Narendra Modi has been in power, his support base has continued to increase. Indian institutions — including the courts and the media — now toe his line. The President, otherwise a ceremonial rubber-stamp post, but the last obstacle keeping Modi from implementing a police state, comes up for re-election by a vote of the legislative houses in July 2017.  No one should be surprised if a Hindu...
  • Moving Closer to the Precipice
      Money Supply and Credit Growth Continue to Falter The decline in the growth rate of the broad US money supply measure TMS-2 that started last November continues, but the momentum of the decline has slowed last month (TMS = “true money supply”).  The data were recently updated to the end of April, as of which the year-on-year growth rate of TMS-2 is clocking in at 6.05%, a slight decrease from the 6.12% growth rate recorded at the end of March. It remains the slowest y/y growth since...
  • What is the Buffet Indicator Saying About Gold?
      Chugging along in Nosebleed Territory Last Friday, both the S&P 500 and the Nasdaq composite indexes closed at record highs in the US, with the Dow Jones Industrial Average only a whisker away from its peak set in March. What has often been called the “most hated bull market in history” thus far continues  to chug along in defiance of its detractors.   Can current stock market valuations tell us something about the future trend in gold prices? Yes, they actually...
  • The 21st Century Has Been a Big, Fat Flop
      Seeming Contradiction CACHI, ARGENTINA – Here at the Diary we have fun ridiculing the pretensions, absurdities, and hypocrisies of the ruling classes. But there is a serious side to it, too. Mockery makes us laugh. And laughing helps us wiggle free from the kudzu of fake news.   Is it real? Is it real? Is it real? Above you can see what the problem with reality is, or potentially is, in a 6-phase research undertaking that has landed its protagonist in a very disagreeable...
  • A Cloud Hangs Over the Oil Sector
      Endangered Recovery As we noted in a recent corporate debt update on occasion of the troubles Neiman-Marcus finds itself in (see “Cracks in Ponzi Finance Land”), problems are set to emerge among high-yield borrowers in the US retail sector this year. This happens just as similar problems among low-rated borrowers in the oil sector were mitigated by the rally in oil prices since early 2016. The recovery in the oil sector seems increasingly endangered though.   Too many oil...
  • Will Gold or Silver Pay the Higher Interest Rate?
      The Wrong Approach This question is no longer moot. As the world moves inexorably towards the use of metallic money, interest on gold and silver will return with it. This raises an important question. Which interest rate will be higher?   It’s instructive to explore a wrong, but popular, view. I call it the purchasing power paradigm. In this view, the value of money — its purchasing power —is 1/P (where P is the price level). Inflation is the rate of decline of...
  • Rising Oil Prices Don't Cause Inflation
      Correlation vs. Causation A very good visual correlation between the yearly percentage change in the consumer price index (CPI) and the yearly percentage change in the price of oil seems to provide support to the popular thinking that future changes in price inflation in the US are likely to be set by the yearly growth rate in the price of oil (see first chart below).   Gushing forth... a Union Oil Co. oil well sometime early in the 20th century   But is it valid to...
  • Warnings from Mount Vesuvius
      When Mount Vesuvius Blew   “Injustice, swift, erect, and unconfin’d, Sweeps the wide earth, and tramples o’er mankind” – Homer, The Iliad   Everything was just the way it was supposed to be in Pompeii on August 24, 79 A.D.  The gods had bestowed wealth and abundance upon the inhabitants of this Roman trading town.  Things were near perfect.   Frescoes in the so-called “Villa of the Mysteries” in Pompeii, presumed to depict scenes from a...
  • A Bumper Under that Silver Elevator – Precious Metals Supply and Demand
      The Problem with Mining If you can believe the screaming headline, one of the gurus behind one of the gold newsletters is going all-in to gold, buying a million dollars of mining shares. If (1) gold is set to explode to the upside, and (2) mining shares are geared to the gold price, then he stands to get seriously rich(er).   As this book attests to, some people have a very cynical view of mining...  We would say there is a time for everything. For instance, when gold went ...
  • Silver Elevator Keeps Going Down – Precious Metals Supply and Demand
      Frexit Threat Macronized The dollar moved strongly, and is now over 25mg gold and 1.9g silver. This was a holiday-shortened week, due to the Early May bank holiday in the UK. The lateral entrant wakes up, preparing to march on, avenge the disinherited and let loose with fresh rounds of heavy philosophizing... we can't wait! [PT]   The big news as we write this, Macron beat Le Pen in the French election. We suppose this means markets can continue to do what they wanted...
  • The Knives Come Out for Trump
      A Minor Derailment GUALFIN, ARGENTINA – Yesterday, stocks fell. And volatility shot up.   When too many people have too many knives out at once, accidental cubism may result   Reports Bloomberg:   The Dow Jones Industrial Average tumbled more than 370 points, Treasuries rallied the most since July and volatility spiked higher as the turmoil surrounding the Trump administration roiled financial markets around the globe. Major U.S. stock indexes...

Support Acting Man

Austrian Theory and Investment

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com