Posts Tagged 'home prices'

Housing: Metro Areas Boom & Bust

Metro Area Home Price Appreciation 2000-2008

source

Daily “Ways-to-Play” The News Before the Moves 3/31/2010

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4 Reasons to Consider Utility ETFs

There are a gazillion ways to play the energy sector with exchange traded funds, but you’re not just limited to oil, natural gas or solar power. Utilities might be an off-the-beaten path way to invest in the nation’s changing energy picture.

ETFDesk users see this as a potential opportunity to: buy Rydex S&P Equal Weight Utilities ETF (RYU)

buy Vanguard Utilities ETF (VPU)

buy iShares S&P Global Utilities Sector Index Fund (JXI)

buy iShares DJ US Utilities (IDU);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Are Home Prices Cheap?

Analysts at Deutsche Bank attempt to answer the question “Rent of Buy?” in a new research piece out today. While falling home prices and declining interest rates have narrowed the rent-buy gap, home affordability is not high by historical standards.

ETFDesk users see this as a potential opportunity to: sell iShares DJ US Real Estate (IYR);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Long-Term Rates Finally on Verge of Breaking Out

ALTHOUGH THE FED HAS reaffirmed its low short-term interest rate policy, it cannot control long-term interest rates. In fact, the yield on the benchmark 10-year Treasury note has risen from a low of 3.23% at Thanksgiving of last year to its current level 3.87%.

ETFDesk users see this as a potential opportunity to: sell iShares Lehman 20+ Year Treasury Bond Fund (TLT)

sell iShares Lehman 7-10 Year Treasury Bond Fund (IEF)

sell iShares Lehman 10-20 Year Treasury Bond Fund (TLH)

buy UltraShort Lehman 7-10 Year Treasury ProShares (PST)

buy UltraShort Lehman 20+ Year Treasury ProShares (TBT)

sell PIMCO 7-15 Year U.S. Treasury Index Fund (TENZ);

Check out how others are using ETFs to capitalize on this news or add your own opinion

M&A surges in Asia while US and Europe suffer

Mergers and acquisitions boomed in Asia in the first quarter in sharp contrast to a slump in deal volume in Europe and the US, underlining a global shift in activity in the wake of the credit crisis.

ETFDesk users see this as a potential opportunity to: buy Gabelli Global Deal Fund (GDL)

buy IQ ARB Merger Arbitrage ETF (MNA);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Oil in Big Macs: Chart of the Day

The idea for this comparison of Oil to Big Macs, is that a Big Mac is representative of a basket of agricultural goods and thus compares the relative advantage of trading food for oil. Whats interesting about this is that theoretically, it should be a somewhat inflation-adjusted measure of oil prices. As of now it appears agricultural goods is undervalued relative to Oil.

ETFDesk users see this as a potential opportunity to: sell United States Oil Fund LP (USO)

buy ELEMENTS – Rogers International Commodity Index Agriculture Total Return (RJA);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Are Home Prices Cheap?

Analysts at Deutsche Bank attempt to answer the question “Rent of Buy?” in a new research piece out today.  While falling home prices and declining interest rates have narrowed the rent-buy gap, home affordability is not high by historical standards.

According to Deutsche Bank, the rent-buy gap has narrowed by 5.2% in Q4 2009 to 88.5% the second highest level since Q1 2003.

national rent-buy gap (rent as % of after-tax mortgage payments, ATMP)

 

source: Deutsche Bank “Rent or Buy?”

While home affordability has improved, rents remain more affodable compared to income.  The cost to rent in Q3 2009 was 9.4% of household income, while the cost to own is 11.3% of household income. Notice the graph below, ATMP as % of household income has fallen signficantly from its peak in Q2 2006 of 17.2% but not below historical trend levels.

source: Deutsche Bank “Rent or Buy?”

 

However, other affordability metrics have shown housing affordability at alltime hights. For example, the most commonly cited metric – the National Association fo Realtors (NAR) index has set highs since December 2009.  However, the Deutsche Bank analysts question this as an appropriate measure. NAR looks at housing costs in isolation.  This grossly underrepresents the dwelling options of any individual.  As we all know, renting is a viable option, so any index that does not take into account the cost of renting a home vs. owning a home is fundamentally flawed.

source: Deutsche Bank “Rent or Buy?”

Using a Price-to-rent ratio, akin to a price-earning ratio, Deutsche Bank analysts argue that home prices could decline another 11%.  During the early 1990s, the average price-to-rent ration was 16.2.  During the mid 2000’s the ratio reached a peak of 24.7 in Q2 2007 and has since fallend to 18.2 in Q4 2009.  However this 18.2 reading is still elevated compated to that of the 1990s. 

During  the  1990’s  a  booming economy did little to push price-rent ratios out of equilibrium as both home prices and rents
moved in the same general direction. In our view, rents are likely to decline, thus prices may
need to fall even further than the 11% that the price-to-rent ratio implies.

source: Deutsche Bank “Rent or Buy?”

source: Deutsche Bank “Rent or Buy?”

With mortgage rates starting to creap up as the FED is signaling the end of mortgage buying, it doesn’t seem like a stretch to think that as rates go up, home prices will fall in order to keep some sort of equilibrium in affordability. 

With the tax credits expiring towards the middle half of this year, continued increase in forclosures, headwinds still persist for the housing market.  Now might be a good time to start building shorts in IYR in the face of exhubirant optimism with the recent Case-Shiller index.

source: www.etfdesk.com

Daily “Ways-to-Play” The News Before the Moves 2/23/2010

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Thai Capital Webcast Alert: Meet the Manager

Thai Capital Webcast Alert: Meet the Manager

buy Thai Capital Fund (TF);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Hong Kong Stocks Rise, Led by Developers Before Land Auction

Hong Kong Stocks Rise, Led by Developers Before Land Auction

buy Asia Pacific Fund (APB);

Check out how others are using ETFs to capitalize on this news or add your own opinion

RPT-GLOBAL MARKETS-Asia shares jump, euro firms on Greece report

RPT-GLOBAL MARKETS-Asia shares jump, euro firms on Greece report

buy Asia Pacific Fund (APB);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Asian shares jump on signs of US revival

Asian shares jump on signs of US revival

buy Asia Pacific Fund (APB);

Check out how others are using ETFs to capitalize on this news or add your own opinion

The euro will face bigger tests than Greece – Soros

Otmar Issing, one of the fathers of the euro, correctly states the principle on which the single currency was founded. As he wrote in the FT last week, the euro was meant to be a monetary union but not a political one. Participating states established a common central bank but refused to surrender the right to tax their citizens to a common authority. This principle was enshrined in the Maastricht treaty and has since been rigorously interpreted by the German constitutional court.

sell Rydex Euro Currency Trust (FXE)

buy ProShares UltraShort Euro (EUO);

Check out how others are using ETFs to capitalize on this news or add your own opinion

‘BTW, Have You Seen the ETF of CEFs?’

No, the title of this article is not the contents of an errant text message from a cell phone of a thirteen year old, but instead it’s actually a headline from last Friday’s market action. Invesco PowerShares debuted PCEF, the CEF Income Composite Portfolio, which based on our experiences and conversations with investment advisors, we believe will gain traction quickly as unique in its class.

Check out how others are using ETFs to capitalize on this news or add your own opinion

‘Next Greece’ Search Is on as Hedge Funds Circle: William Pesek

Feb. 22 (Bloomberg) — The search for the next Greece is finding its way to an unlikely place: Japan.

sell iShares MSCI-Japan (EWJ)

sell Rydex Japanese Yen Trust (FXY)

buy UltraShort MSCI Japan ProShares (EWV)

sell WisdomTree Dreyfus Japanese Yen Fund (JYF)

buy ProShares UltraShort Yen (YCS);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Millions of Unemployed Face Years Without Jobs

Peoples biggest asset is their job, not their house. This bodes poorly for home prices.

sell SPDR S&P Homebuilders ETF (XHB);

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Dangerously Rich Fertilizer Mix

The danger of playing with fertilizer is that it blows up in your face. Investors should take note given the recent frenetic takeover activity in the fertilizer industry. With corporate valuations looking stretched and a mixed outlook for underlying weather-sensitive fertilizer prices, well above their 2009 lows, the conditions look set for some volatility.

sell Market Vectors–Agribusiness ETF (MOO);

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German Business Confidence Unexpectedly Declines

German business confidence unexpectedly fell for the first time in 11 months in February as the coldest winter in 14 years damped retail sales and construction.

sell iShares MSCI-Germany (EWG)

sell Western Asset Variable Rate Strategic Fund, Inc (GFY);

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El-Erian Sees More China Flexibility as Currency Strengthens

Pacific Investment Management Co.’s Mohamed El-Erian says China is likely to adopt more market-based policies “within the next two years,” cementing the view of investors who are driving the Asian nation’s currency to its largest gains in a year.

buy Market Vectors Chinese Renminbi USD ETNs (CNY);

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Over Done: Homebuilders Reaching a Top?

The homebuilders have seen an impressive rally since March ‘09 lows, with ITB and XHB outpacing the S&P 500 by about 40%. It shouldn’t be a huge suprise since homebuilders took a beating in 2008, falling much more than the broad market indices before and during the crisis. However, they have contiuned to outpace the S&P 500 so far this year, with ITB up 9.76%, XHB up 5.24% and the S&P (SPY) down 1.5% (returns as of Feb. 19th). One has to wonder have homebuilders come too far too fast?

buy UltraShort Real Estate ProShares (SRS)

sell SPDR S&P Homebuilders ETF (XHB)

sell iShares Dow Jones U.S. Home Construction Index Fund (ITB)

sell iShares DJ US Real Estate (IYR);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Harvard’s Rogoff Sees Sovereign Defaults, ‘Painful’ Austerity

Ballooning debt is likely to force several countries to default and the U.S. to cut spending, according to Harvard University Professor Kenneth Rogoff, who in 2008 predicted the failure of big American banks.

sell iShares Emerging Market Bond Exchange Traded Fund (EMB);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Goldman Sachs Research Team on Q4 GDP numbers

Love them or hate them, when Goldman speaks you should listen.  The Goldman Economic Research team, headed by Jan Hatzius has spoken out on Friday’s impressive GDP numbers.  Hatzius notes the two recovery “camps” that have emerged among US economic forecasts.

The first camp is the “V-shaped” recovery camp which believes the crisis pushed production , employment, and consumer spending to excessively low levels and that economic activity will rebound strongly.  Their key piece of evidence is the belief that deep recessions produce strong recoveries:

They illustrate their case by pointing to the historical regularity that deeper recessions have typically been followed by stronger recoveries.  Exhibit 1 illustrates this point by plotting the peak-to-trough decline in real GDP against the average growth rate over the two years following the business cycle trough.1  Based on a mechanical extrapolation of the historical relationship, real GDP growth in the current recovery should average nearly 6%.  To our knowledge, no forecaster actually predicts such torrid growth, but the first camp views the historical relationship as a strong indication that the recovery should be very solid.

Exhibit 1 of the V-Shaped camp:

Source: Council of Economic Advisers, Goldman Sachs

The second camp is the “U-Shaped recovery” camp, which disputes the relevance of the deep recession/strong recovery argument.  They assert that the key issue for any recovery is the nature, not the depth or the recession.

In contrast, members of the second camp dispute the relevance of Exhibit 1.  They argue that the key issue for the strength of the rebound is not the depth, but the nature of the recession.  Most postwar recessions were due to tight monetary policy that deferred demand and activity in interest-rate sensitive sectors such as residential construction and consumer durables.  But once the Fed decided to ease policy, demand in these sectors rebounded sharply, fueling rapid output and employment growth. This would suggest that the correlation in Exhibit 1 is largely due to the fact that cycles with more aggressive Fed tightening produced more pent-up demand at the trough of the recession, and hence a bigger rebound in the recovery.  Thus, the second camp believes that the historical correlation between deep recessions and strong recoveries does not say much about the recovery from the Great Recession, which resulted not from Fed tightening but from the bursting of a housing and credit bubble that pushed private demand down from unsustainable levels.

Source: Dept. of Commerce, Goldman Sachs

Now that six months have passed since the trough of the recessions (sometime in mid-2009), does the data support one of these camps?  According to Goldman, the evidence is leaning towards the U-Shaped recovery camp. Despite a relatively robust rebound over the last two quarters (keep in mind the substantial revision to Q3 GDP, so 5.7% figure might be coming down), Goldman notes that the recovery has received an unusually large boost from the turn in the inventory cycle.

The inventory cycle only lasts until firms have brought the level of production into better alignment with the level of demand, which typically happens within a few quarters.  Since inventory liquidation has already slowed from $160 billion (annualized) in the second quarter to $34 billion in the fourth quarter, most of this boost is probably behind us.  As the inventory cycle winds down, this implies a sharp slowdown in real GDP growth from an average of 4% in the second half of 2009 to only about 2% in 2010.

Goldman also points out that the improvement in financial market conditions has been somewhat offset by tightness in bank lending standards.  Banks have failed to reverse much of the dramatic tightening in their standards that occurred during the recession. This tightness of lending is counteracting some of the easing in market conditions.

Source: Goldman Sachs, FED Board Senior Loan Officer Survey

We found that is statement the most interesting out of the whole research note:

Ultimately, the contrast between the financial markets and the banks may be settled by the behavior of the real estate markets.  If a renewed decline in house prices causes more defaults, banks are likely to keep their lending standards tight; moreover, this would also pose a risk to the rally in the credit markets and could thereby tighten financial market conditions.  However, if house prices rebound, credit quality would improve sharply, and this would presumably lead banks to lower their credit standards in order to grow their loan books.  This could produce a more notable improvement in private demand.

It appears that Goldman is hinging the sustainability of economic recovery on the recovery in the housing markets.  Given the rash of foreclosures that are likely to come during the second half of ’10, it seems unlikely that prices will rebound.  That then seems to mean lending will stay tight and the rally equity markets seems overbought.  It seems evident that the S&P 500 is not currently pricing in 2% economic growth that Goldman is forecasting for 2010

Source: Goldman Sachs

If you believe Goldman then you should be looking to either take some of your gains off the table or look to take defensive or short positions:

“WaysToPlay” this research:

Short

SPY S&P 500 SPDR

Long

SDS UltraShort S&P 500 ProShares

SPXU Ultra ProShort S&P500 ProShares

Track this call over time: http://www.etfdesk.com/headline.aspx?hId=2154


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