Investing in real estate is when investors look to the property market for positive returns. Investing in real estate involves buying and managing properties, and there are several criteria for success. This includes the interest rate, expectations of price appreciation, and, when considering rental units, the level of vacancy. For income seekers, looking at investing in real estate versus the prevailing 10- and 30-year bond market would indicate that the property market might offer a good long-term alternative.
My cousin and his family had to walk away from their house in Arizona. There were no buyers, and they were underwater after the market crashed. The whole thing was really hard on them on all fronts, and they had to move. They’re in Colorado now, closer to family, with the ordeal behind them.
Like most things, timing is everything. In real estate, institutional investors are buying homes like crazy to rent out. The new housing boom is for rentals.
The Wall Street Journal wrote that The Blackstone Group L.P. (NYSE/BX) is buying homes at a rate of about $100 million a week, with institutional investors now making up a third of all cash buyers. Affordability for individuals is going to get squeezed.
On the stock market, homebuilder stocks continue to roar. Lennar Corporation (NYSE/LEN) reported excellent strength in its financial results.
According to the company, its fiscal first quarter of 2013 (ended February 28, 2013), produced revenue growth of 37% to $990 million. New orders grew 34% to 4,055 homes; the company’s order backlog grew 82% to 4,922 homes. Earnings for Lennar grew significantly to $57.5 million, or $0.26 per diluted share, compared to net earnings of $15.0 million, or $0.08 per diluted share.
On the stock market, institutional investors have bid the stock up 30 points since last October. (See “Stock Market Sinkhole: ‘It Didn’t Look Unstable’.”) It’s a stock market breakout for sure, but it’s based on fundamentals. Lennar’s stock chart is below:
Chart courtesy of www.StockCharts.com
Homebuilder PulteGroup, Inc. (NYSE/PHM) quintupled on the stock market over the last six months. Hovnanian Enterprises, Inc. (NYSE/HOV) has tripled since last June.
Clearly, the run on homebuilders is a multi-faceted play by institutional investors. The buying momentum for both rental homes and on the stock market is pronounced, and I see no reason why it will end … Read More
Similar to the U.S. economy, only years earlier, the Japanese economy also burst following a boom in real estate prices. To help revive its economy, the Bank of Japan brought interest rates to near zero in 1999 and has done several rounds of quantitative easing since. The central bank of Japan has increased its balance sheet to 166 trillion yen. (Source: Wall Street Journal, March 21, 2013.)
But all this monetary stimulus—interest rates near zero for years and lots of money printing—has helped the Japanese economy. In fact, global exports from the Japanese economy fell 2.9% in February 2013 from February 2012. This is important because it shows how the Japanese economy is struggling even after implementing unheard of monetary policy intended to bring economic growth to the country—similar to what the Federal Reserve is doing now in the U.S.
February marked the eighth consecutive month of slowing exports and an increasing trade deficit (more imports than exports) for Japan—the biggest streak of trade deficits since 1980. (Source: Bloomberg, March 21, 2013.)
Japan’s national debt to gross domestic product (GDP) stands at about 204% of GDP—this shows you just how easy monetary policy has been in Japan.
The Japanese economy should be looked upon as a good example for the Federal Reserve to see how its monetary policy will play out in the U.S. economy.
What has this done for the Japanese economy with all its paper money printing? Not much, to say the least. Since 1998, wages in the Japanese economy are down seven percent, property prices are down 51%, and tax revenues are down 14%. The Japanese economy has lost its status as the second-biggest economic hub in the world to China.
The Japanese economy is proof that aggressive paper money printing will not stimulate an economy.
At home, the Federal Reserve is still planning to buy $85.0 billio… Read More
China is beginning to show renewed growth. (Read “China Showing Promise as Chinese Stocks Pick Up Steam.”). The country is driving stimulus spending and easy monetary policy to get its economy back on track and drive consumers to spend.
And while there was talk of an asset bubble in China’s housing market, I’d say that the short-term risk is high, but there’s also excellent long-term growth potential in the housing market.
The conditions bode well for the country’s housing market, considering that there are over 300 million middle-class consumers in China, and as a group, they are hungry for a lifestyle like we have in the West. Real estate investments are a key goal for the Chinese.
Standard & Poor’s analysts believe the housing market in China is stabilizing, with buyers returning while home prices are under control. (Source: Badkar, M., “S&P: China’s Housing Market Is Finally Looking Up,” Business Insider August 13, 2012, last accessed February 5, 2013.)
Moreover, in an ironic twist, at a time when California’s housing market is struggling, the state’s California Public Employees’ Retirement System (CalPers), a pension fund, invested about $530 million in two new China real estate funds managed by ARA Asset Management, which is positive longer-term.
To play China’s housing market, you can take the more conservative approach and buy the Guggenheim China Real Estate (NYSEArca/TAO) exchange-traded fund (ETF) with a year-to-date return of 58.8% as of December 30, 2012. The fund holds mainly large value–oriented Chinese real state stocks.
Chart courtesy of www.StockCharts.com
For a speculative and potentially higher return opportunity, an emerging small-cap Chinese housing market company that I like longer-term is Xinyuan Real Estate Co., Ltd. (NYSE/XIN). Xinyuan has a current share price of $3.74 and a market cap of $271 mi… Read More
China is beginning to show renewed growth. The country is focusing on stimulus spending and easy monetary policy in hopes of getting its economy back on track and driving its consumers to spend.
And while there has been talk of an asset bubble in China’s real estate market, my view is that the short-term risk is high, but there is excellent long-term growth potential in China’s real estate sector. (For my views on China’s retail sector, read “Luxury Retailers Loving China.”)
Investment in the country’s housing market surged 61.7% from January to November, based on the data from the National Bureau of Statistics.
There are over 300 million middle-class consumers in China, and as a group, they are hungry for a lifestyle similar to middle-class consumers in the West. Real estate is a key goal for the Chinese.
Standard & Poor’s analysts believe the real estate market in China is stabilizing, with buyers returning while home prices continue to decline.
And in an ironic twist, at a time when California’s real estate market is struggling, the state’s California Public Employees’ Retirement System (CalPers), a pension fund, announced it would be investing about $530 million in two new China real estate funds managed by ARA Asset Management, which is longer-term positive.
To play China’s real estate market, you can take the more conservative approach and buy The Guggenheim China Real Estate exchange-traded fund (ETF) (NYSE/TAO), which has a year-to-date return of 53.1% as of November 29. The fund holds mainly large value-oriented Chinese real state stocks.
Chart courtesy of www.StockCharts.com
To take a more speculative and potentially higher return opportunity, an emerging small-cap Chinese real estate company that I like longer term is Xinyuan Real Estate Co., Ltd. (NYSE/XIN).
Xinyuan is down from its 52-week high of $3.95 on April 3, 2012 and has outp… Read More
One of the most often talked about parts of the economy is the real estate market sector. Because real estate is such a large and important part of the economy, naturally, many eyes are focused on whether or not this market sector can and will rebound from its deep decline.
While we have certainly seen a strong bounce off the bottom, there are still many concerns for the future of both the real estate market sector and housing stocks, specifically. Investors in housing stocks are definitely ahead of the curve, as many housing stocks have increased substantially. With gains in excess of 100%, the question on many people’s minds is: will the real estate market sector continue its upward trajectory or are housing stocks teetering on the edge of a massive decline?
I think recent comments by the CEO of D.R. Horton, Inc. (NYSE/DHI), Donald Tomnitz, can illuminate a lot. Tomnitz stated in a conference call that he was quite concerned that the lack of jobs might lead to lower home sales next year. D.R. Horton is, by volume, the largest homebuilder in America. One of the most sobering moments was when Tomnitz stated, “I also see the fact that there are potential layoffs in a number of industries, especially the defense industry.” (Source: “D.R. Horton Falls as CEO Cautions on Job Growth Next Year,” Bloomberg, November 12, 2012.)
The question isn’t the current level of the real estate market sector. For the fourth quarter, which ended September 30, 2012, D.R. Horton reported net income of $100 million, a massive increase of 180% from the prior year’s quarter. Revenue for the fourth quarter was $1.3 billion, up 21% from last year. Net sales orders for homes were 5,276, an increase of 24% from the prior year’s quarter. The backlog was also quite interesting, as the company reported a total of 7,240 homes at the end of the quarter, a massive increase of 49% from last year’s quarter. (Sourc… Read More
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