CoreLogic released its CoreLogic Home Price Index (HPI™) and HPI Forecast™ for December 2016 which shows home prices are up both year over year and month over month. Home prices nationwide, including distressed sales, increased year over year by 7.2% in December 2016 compared with December 2015 and increased month over month by 0.8% in December 2016 compared with November 2016, according to the CoreLogic HPI. The CoreLogic HPI Forecast indicates that home prices will increase by 4.7% on a year-over-year basis from December 2016 to December 2017, and on a month-over-month basis home prices are expected to increase by 0.1% from December 2016 to January 2017. The CoreLogic HPI Forecast is a projection of home prices using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state. “As of the end of 2016, the CoreLogic national index was 3.9% below the peak reached in April 2006,” said Dr. Frank Nothaft, chief economist for CoreLogic. “We expect our national index to rise 4.7% during 2017, which would put homes prices at a new nominal peak before the end of this year.” “Last year ended with a bang with home prices up over 7% nationally, led largely by major metro areas,” said Anand Nallathambi, president and CEO of CoreLogic. “We expect prices to continue to rise just under 5% in 2017 buoyed by lack of supply and continued high demand.”
Oil prices fall on bloated US fuel inventories, stalling China demand
Oil prices slid on Wednesday to extend falls from the previous session, as a big increase in US crude inventories and a slump in Chinese demand implied that global oil markets remain oversupplied despite OPEC-led efforts to cut output. International Brent crude futures were trading at $54.81 per barrel at 1257 GMT, down 24 cents from their previous close. US West Texas Intermediate (WTI) crude was at $51.77 a barrel, down 40 cents. The declines came on the back of unexpectedly big increases in US fuel inventories, as reported by the American Petroleum Institute (API) on Tuesday. Crude inventories rose by 14.2 million barrels in the week to February 3 to 503.6 million barrels, compared with analysts’ expectations in a Reuters poll for a 2.5 million barrel increase. “If the official data from the US Department of Energy were to show a similar inventory build … US crude oil stocks would be catapulted to almost a record level,” Commerzbank said in a note. The US Energy Information Administration publishes its official data later on Wednesday. Gasoline stocks rose by 2.9 million barrels, compared with expectations for a 1.1-million-barrel gain. Goldman Sachs analysts said that the data pointed to “US gasoline demand falling sharply by 460,000 barrels per day (bpd) year on year in January, with such declines only previously (seen) during recessions.” The EIA said on Tuesday it expects US crude production to grow by 100,000 bpd to 8.98 million barrels this year, 0.3% less than previously forecast, but expects production to jump by 550,000 bpd in 2018.
MBA – mortgage applications up
Mortgage applications increased 2.3% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 3, 2017. The Market Composite Index, a measure of mortgage loan application volume, increased 2.3% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 6% compared with the previous week. The Refinance Index increased 2% from the previous week. The seasonally adjusted Purchase Index increased 2% from one week earlier. The unadjusted Purchase Index increased 9% compared with the previous week and was 4% higher than the same week one year ago. The refinance share of mortgage activity decreased to 47.9% of total applications, its lowest level since June 2009, from 49.4% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.9% of total applications. The FHA share of total applications decreased to 11.9% from 12.1% the week prior. The VA share of total applications increased to 12.7% from 12.4% the week prior. The USDA share of total applications remained unchanged at 0.9%.
How Trump could already be affecting monetary policy in China
Chinese officials might be trying to drain liquidity from their economy but the central bank remains fearful of raising interest rates too quickly, according to one strategist who suggests President Donald Trump might be indirectly influencing policy in the country. “What is China trying to do about (large outflows)? Yes, they put up interest rates, they’re draining liquidity, but still they don’t seem to be really trying to stem the loan growth,” Jane Foley, senior forex strategist at Rabobank, told CNBC Wednesday. “We know that they’ve got several issues, we know that they are trying to perhaps drain the liquidity, but they don’t want to take action. They don’t want to put up interest rates too much because I think they appear to be fearful that that could slow growth. With respect to Donald Trump, I think part of the reason they are still trying to have this two-way trade in the exchange rate is to give this impression that they are not a currency manipulator, they are of course trying to stop the rate of movement,” she added. Data released Tuesday showed China’s foreign exchange reserves dropped more than expected in January, to below the $3 trillion threshold for the first time in almost six years. Such figures have raised concerns among analysts that continued outflows will prompt the Chinese authorities to devalue their currency. Foley noted the data also showed a continued rise in loan growth in the world’s second-largest economy, which she said could mean this cash was making its way out of the country.
Meanwhile, the global debate on currency manipulation has seen a resurgence with the presence of the new US president in politics. His trade adviser has recently blamed Germany for benefiting from a weak euro and Trump himself has previously criticized Japan and China for having a weak exchange rate. “It’s been a while, certainly not since he has been the president, certainly not since the election has (Trump) called China a currency manipulator and I think Donald Trump is perhaps aware of the fact that they are taking action to keep the exchange rate higher not lower,” Foley told CNBC. Foley predicted that China, its loan growth and its monetary policy, could be the next unexpected “black swan” event in finance this year. “We’ve known Greece is at risk, coming back to the headlines right now, but China is so much of a larger economy. That is the one that can certainly do a lot more damage to global confidence,” she added.
WSJ – for Chinese home buyers, Seattle is the new Vancouver
Chinese real-estate buyers are suddenly descending on the Seattle region. Some are lured by perceptions the coastal city is a bargain, others by warm memories of the 2013 Chinese film “Finding Mr. Right,” which put Seattle on the pop-culture radar there. The biggest draw, though, might be the fact that it isn’t Vancouver. In August, the Canadian province of British Columbia imposed a 15% tax on foreign investment in the city, which until recently was a popular destination for Chinese. The tax applies to anyone who isn’t a citizen or permanent resident of Canada and buys a home in metro Vancouver. The provincial government says the tax policy is aimed at making homes in the city more affordable for local residents, who have seen prices soar by nearly 50% over the past three years. The city of Vancouver also introduced a separate vacancy tax of 1% on the assessed value of an empty property. The moves have had a chilling effect. Web searches in China for Vancouver properties dropped 37% in December compared with a year ago, according to Juwai.com, an online real-estate portal that targets Chinese home seekers. Seattle, by contrast, is red hot. Searches for Seattle properties in China jumped 125% year-over-year in November, after increasing 71% in October, according to Juwai. They rose 1.8% in December.
It is too early to quantify the effect of Chinese interest on Seattle’s home sales, and no one tracks the ethnicities of buyers in particular markets. But the sudden surge in interest in Seattle comes at a time when it already ranks among the nation’s hottest real-estate markets. It led the US in home-price growth in November, according to a report released Tuesday by S&P CoreLogic Case-Shiller Indices, which found prices there increased by more than 10% over the same month in 2015. Some places that have been favorites for Chinese in recent years—including London, Australia and, most recently, New York—are rolling out policies that discourage foreign purchasers. In the U.K. in late 2014, the cost of buying homes valued at more than £937,000, or $1.17 million at current exchange rates, went up on a sliding scale, rising to a 12% tax on the portion of a sale over £1.5 million. In April, an additional 3% was tacked on to the sale price of homes for foreign buyers or for those renting out their properties. Australia bars foreigners from purchasing resale properties, and some states also have imposed taxes on foreign purchasers. In New York, the mayor last week proposed a 2.5% tax on properties of $2 million or more, a favorite category of foreigners. Mike O’Brien, a Seattle City Council member, said he is exploring measures, including a vacancy tax, to combat another trend that has irked Vancouver residents: foreign investors who leave homes vacant and untended. “It baffles me that people would buy real estate here and not fill it up,” he said.
MBA – mortgage credit availability increases in January
Mortgage credit availability increased in January according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) which analyzes data from Ellie Mae’s AllRegs® Market Clarity® business information tool. The MCAI increased 1.1% to 177.1 in January. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. Of the four component indices, the Jumbo MCAI saw the greatest increase in availability over the month (up 4.7%), followed by the Conventional MCAI (up 2.3%), and the Government MCAI (up 0.2%). The Conforming MCAI decreased over the month (down 0.1%). “Mortgage credit availability increased for the fifth consecutive month in January, driven by increased availability of jumbo loan programs,” said Lynn Fisher, MBA’s Vice President of Research and Economics. “We saw a particular increase in agency jumbo programs that focus on loans in high cost areas that exceed the baseline conforming loan limit of $424,000 but which are still eligible for purchase by the GSEs. While the change in GSE loan limits may have had an indirect impact on the jumbo MCAI, there were other factors at play as several investors rolled out new jumbo loan programs in January.” Of the four component indices, the Jumbo MCAI saw the greatest increase in availability over the month (up 4.7%), followed by the Conventional MCAI (up 2.3%), and the Government MCAI (up 0.2%). The Conforming MCAI decreased over the month (down 0.1%).
Olick – here are the 10 hottest rental markets to make investors’ landlord dreams come true
Home prices continue to climb in already-expensive Seattle, but investors with enough cash to get into the city’s landlord business could see big returns. Seattle ranked in the Top 3 of the nation’s best markets for rental real estate investors, according to an “opportunity” list from HomeUnion, a single-family-rental acquisition and management company. Despite its high home prices, Seattle is seeing increasing demand for rental dwellings because of robust job growth in the area. Amazon alone recently announced it was hiring 100,000 new employees, and while they won’t all work in Seattle, the corporate headquarters will need to grow for support. New jobs mean stronger demand for rental housing. The story is much the same in Atlanta, which topped HomeUnion’s list as the best opportunity for single-family-rental investors. Both the Falcons and the Braves are building new stadiums in Atlanta, which will create an estimated 75,000 jobs for the city. Plus, home prices in Atlanta have not yet recovered as well as those in other markets, so investors can get in more easily and reap higher rents because of the increased demand. “Atlanta has moved up the list. They were late to the [recovery] party and are now seeing 3.5% rent growth” said Steve Hovland, director of research at HomeUnion. “They’re also having a big decrease in single-family-rental vacancies.” Like Atlanta, Orlando, Florida, which came in at No. 2 on the list, is seeing an influx of retirees looking for warm climates. Orlando has both supply and demand, making entry prices for investors attractive. As the home of Walt Disney World and scores of other attractions, Orlando has set new tourism records, also boding well for its rental market. “That will create thousands of leisure and hospitality jobs, which are lower paying, so they preclude home ownership,” Hovland said.
While Atlanta topped the list because of its low entry price and high job growth, other markets made the Top 10 despite their cooler employment prospects. Detroit, Memphis, Tennessee, and Chicagohave relatively low home prices when compared with asking rents, making them lucrative for investors. While there has been considerable apartment construction in Chicago and other markets on the list, most of that has been on the luxury end and doesn’t compete directly with single-family rentals. Previously hot rental markets, like San Francisco and San Jose, California, have cooled for investors because new apartments compete more directly with those high-priced homes. With more apartment supply, rents are coming down, along with potential investor returns. HomeUnion “opportunity” ranking, by metro area
- Las Vegas
- San Diego
- Oakland, Calif.
- Dallas-Fort Worth
WSJ – big investors cut back on commercial property as bull market loses steam
Some prominent real-estate investors are reducing their holdings and getting more selective about new deals, in a sign that the eight-year bull market for US commercial property is coming to a close. Asset managers at pension funds and endowments, as well as private-equity firms and other big investors, are throttling back on new acquisitions, selling more assets and shifting to less risky strategies as a way to protect against potential losses in a downturn. Additional selling could put stress on the market because demand for property has started to flag, especially at current price levels. Deal volume decreased by $58.3 billion, or 11%, in 2016, the first annual decrease since 2009, according to data firm Real Capital Analytics, a sign that investor appetite is waning. Investors that have picked up the pace of selling to lock in profits include private-equity firm Blackstone Group LP, real-estate giant Brookfield Asset Management, United Parcel Service Inc.’s pension trust and Harvard Management Company, which manages Harvard University’s endowment. When these big investors do buy, they are focusing more on niche properties such as self-storage warehouses and biomedical facilities, which haven’t seen the sharp price rise of trophy office buildings and rental apartments. “We definitely have a risk-off mentality,” said Judy McMahan, a portfolio manager for UPS’s $32 billion pension trust. “We’re being careful.” The pension trust sold more property than it bought last year, and its new acquisitions included senior housing and industrial space in the U.K., said Ms. McMahan.
Brookfield also increased the pace of its selling, unloading about $3 billion in property in 2016 compared with about half that much in 2015. The company recently put on the block a 49% stake in its sprawling Brookfield Place complex in Manhattan. The complex just finished overhauling its retail space and filling the 2.5 million square feet of office space emptied in 2013 when Bank of America Corp. moved out. “We think now is an opportune time to reduce some of our exposure to that asset,” said Brian Kingston, Brookfield senior managing partner. “We can recycle the capital into higher returning investment opportunities.” Caution among investors in the $11 trillion US commercial property sector is being driven by lofty prices, the length of the market cycle so far and the recent rise in interest rates, which makes bonds look more attractive compared with commercial property. Also, developers are adding new supply of some property types at the fastest rate since the recovery began. Few investors predict a crash along the lines of the 2008 downturn because debt levels aren’t nearly as high and the economy continues to show signs of strength. Some believe office buildings, malls, apartment buildings and other commercial property will continue to enjoy rising rents and occupancy rates if President Donald Trump’s pro-growth economic plans work as intended. Since 2009, investors have been handsomely rewarded for purchases of office buildings, warehouses, apartment buildings and other commercial property. Thanks to low interest rates and the improving US economy, a valuation index published by Green Street Advisors has increased 107% since hitting its crash-era low in May 2009. But that rocketing growth is slowing. The Green Street index, which focuses on top-quality US property owned by real-estate investment trusts, has stayed flat since mid-2016, according to Green Street.
Another closely followed metric—an index compiled by the National Council of Real Estate Investment Fiduciaries—showed total returns from commercial real estate rising 9.2% in the year ending Sept. 30, 2016, a sharp decline from 13.5% for the 12 months ending in the third quarter of 2015 and growth ranging from 11% to 14% in each of the previous five years. Fund investors are pulling back as well. Quarterly distributions and redemptions from open-ended funds that buy low-risk properties, a popular investment vehicle among institutional investors, doubled during the first nine months of 2016, after ticking up just 11% in 2015, according to the council. Much of the bull market has been fueled by low interest rates, which encouraged investors to forsake bonds and stretch for more yield. But rates have jumped since Election Day. Real-estate investment trusts took the first hit, with equity REITs declining 2.9% in the fourth quarter of last year compared with a gain of 5.3% for the S&P 500, according to Green Street. This year through Monday, equity REITs have had a total return of 0.38%, compared with 1.9% for the S&P 500, Green Street said. Also, until recently, the rise in property values was fueled by developers keeping new supply in check. But that, too, is beginning to change with certain property types. For example, more than 378,000 new apartments are expected to be completed across the country this year, almost 35% more than the 20-year average, according to real-estate tracker Axiometrics Inc.
Private investors say the real estate they are chasing these days often is either real estate that’s less risky or properties that can be improved and sold quickly, rather than those—like developments—that might not be finished until the economy is well into the next down cycle. For example, private-equity giant KKR & Co. moved quickly to find a buyer last year after it purchased the landmark Sullivan Center in the Chicago Loop for $267 million. A few months after the deal closed, KKR sold the retail portion of the 946,000-square-foot building to Acadia Realty Trust. “Given we are in the later stage of the real-estate cycle, we have been focused on business plans that require less time to create value,” said Chris Lee, co-head of real-estate credit and chair of KKR’s real-estate valuation committee. Blackstone sold more property than it bought last year, according to Kenneth Caplan, the firm’s chief investment officer for real estate. Sales have included more traditional property types such as apartment buildings and hotels. One of its biggest buys last year was BioMed Realty Trust Inc., which leases offices to the life science industry. “It’s later in the cycle where you have to be more targeted,” Mr. Caplan said. Harvard’s endowment is among the big institutions that sold more property last year than it purchased, according to people familiar with the matter. A spokeswoman for the endowment declined to comment. Institutions that sell property acknowledge values could keep rising, but said they want to play it safe. “Some of the investments we disposed of, if we held on to them another year or so, it’s possible we’d make more money,” said Ms. McMahan of UPS. “However, we felt it was the appropriate time to monetize our gains.”