Single-family rentals now account for 13% of the overall housing stock, up from 9% in 2005, according to a report by Moody’s Analytics. (…)
Rents in San Jose, California – one of the hottest real-estate markets in the country – appear to be 19% overvalued when compared to home prices, according to Moody’s. The average rental price for a single-family home in San Jose is now $3,121. Relative to home prices, the average rent should be $2,632, Moody’s said.
Similarly, rents in Denver are 18% overvalued, with families paying $1,746 on average, when normal rents would be closer to $1,485.
Typically, rents for single-family homes should be in line with monthly mortgage payments for a similar house.
Rents are also too high relative to home prices in Houston, where Moody’s estimates they are 8% overvalued. That could be particularly concerning given fears that the fall in oil prices will dampen the housing market there. (…)
Right now, the homeownership rate is hovering around 64%, down from 70% a decade ago. (…)
(…) The number of renters who are 65 or older will reach 12.2 million by 2030, more than double the level in 2010, according to research by the Urban Institute in Washington. While the millennial generation born after 1980 has driven demand for apartments in recent years, baby boomers — those born from 1946 to 1964 — will be the next wave, pushing up rents and spurring construction of more multifamily housing. (…)
Rappaport’s research found that adults in their 50s and 60s accounted for almost all of the net increase in multifamily occupancy from 2000 to 2013. Once members of the baby boom generation start entering their 70s next year and downsize, “multifamily home construction is likely to continue to grow at a healthy rate through the end of the decade,” he wrote in a report published last month.
Already, rental vacancy rates are hovering near 21-year lows. That’s pushing the national median rental price for all types of homes to $1,367 a month as of May, up 14 percent from four years ago, according to data from Seattle-based Zillow, a real-estate website.
Work began in June on the most buildings with five or more units since 1987, Commerce Department figures show. They represented about 41 percent of total housing starts, up from 16 percent when the economic expansion began in June 2009. (…)
The housing shortage illustrated by Doug Short:
Gary Ross, the founder of consultants PIRA Energy Group, said oil markets aren’t nearly as oversupplied as many believe and spare capacity is tight since Saudi Arabia is pumping all the crude it can without new drilling.
“Current prices are unsustainable,” he said Monday in an interview in London. “It’s hard not to see oil hitting $100 a barrel at some point in the next five years.”
The forecast from Ross, who last year turned bearish on oil before prices shrank by half, is at odds with other analysts and investors bracing for “lower for longer” prices, a term coined by BP Plc Chief Executive Officer Bob Dudley. Saudi Oil Minister Ali Al Naimi said in December the world may not see $100 crude again, while the International Energy Agency has described the markets as “massively oversupplied.”
Such views fail to take into account the impact of $50 oil on output outside North America as producers reduce spending, according to Ross. The likelihood of further disruption to OPEC supplies and the boost to consumption from cheap fuel also support prices, he said. (…)
Saudi Arabia has already exhausted its ability to ramp up “instantaneous” production in the event of an outage, Ross said. The kingdom, which pumped a record of almost 10.6 million barrels a day in June, could raise output by 1 million barrels a day in 90 days with extra drilling, he said. That’s about half the spare capacity estimated by the Paris-based IEA.
“There’s not spare capacity to speak of instantly available,” Ross said. There are also growing geopolitical threats to supply, including from Islamic State, he said.
PIRA forecasts a jump in global oil demand of about 1.7 million barrels a day this year and a similar gain in 2016. That beats the 10-year average increase of about 1 million barrels a day and exceeds predictions from other analysts and oil companies. (…)
Supplies from most nations outside the Organization of Petroleum Exporting Countries will contract next year for the first time since 2008. While output in North America will increase, production from Australia, the North Sea, Colombia and Argentina will decline, according to PIRA.
Even higher exports from Iran following the landmark July 14 accord to ease sanctions may do little to check oil’s advance, Ross said. The increase may be limited to less than 500,000 barrels a day over six months and the country will struggle to sell its condensate stockpiled on tankers, he said.
Hedge funds and other speculators, having cut bullish bets on WTI crude to the lowest level since March, may be ready to start buying again as low prices cause the market to tighten. “We are approaching selling exhaustion,” Ross said. “The magic of prices works.”
- 68 companies (23.6% of the S&P 500’s market cap) have reported. Earnings are beating by 5.9% (5.6% last Friday) while revenues have positively surprised by 0.4%.
- The beat rate is 69% (67%). Ex-Financials: 78% (76%)
- Expectations are for a decline in revenue, earnings, and EPS of -3.8%, -2.6% (-2.8%), and -1.2% (-1.4%).
- These would be +1.7%, +1.9%, and +3.4% on a trend basis (ex-Energy and the big-5 banks). This excludes the likelihood of beats which have been above 4% over the past three years.
The Federal Reserve sent a message to the largest U.S. financial firms: Staying big is going to cost you.
The Fed’s warning, articulated in a pair of rules it finalized Monday, is among the central bank’s starkest postcrisis regulatory moves pressing Wall Street banks to reconsider their size and appetite for risk.
The Fed completed one rule stating that the eight largest banks in the country should maintain an additional layer of capital to protect against losses, its plainest effort yet to encourage them to shrink. At the same time, it offered a reprieve to General Electric Co.’s finance unit from more-intensive regulation, after the company promised to cut its assets by more than half. (…)
For Wall Street banks and their investors, the emerging regime presents a series of choices: specifically whether to pay the cost of new regulation, which will fall to the bottom line, or change their business models by shedding businesses or withdrawing from certain markets, such as owning commodities. (…)
Of the eight big banks, only J.P. Morgan doesn’t have enough capital to meet the rule, which comes into full effect in 2019. The bank has a $12.5 billion shortfall, according to Fed officials. J.P. Morgan executives have said they believe they can cut businesses and take other actions to meet the deadline. (…)
Gains in U.S. stocks have become so focused on the shares of larger companies that the market appears ready to falter, according to Cam Hui, an adviser to Qwest Investment Management Corp.
The attached chart displays two indicators that Hui cited in a blog posting two days ago. He tracked the ratios of equal-weighted versions of the Nasdaq-100 and Standard & Poor’s 500 indexes to the original benchmarks, which give more weight to larger companies by market value.
Both ratios set this year’s highs in April, and then retreated to their lowest levels in more than two years. The Nasdaq-100 version dropped 5.2 percent from its peak through yesterday, while the S&P 500 version slid 3.3 percent. Their losses accelerated last week as well-received earnings from Google Inc. sent the Internet company’s shares surging.
“The troops aren’t following the generals,” Hui wrote in a Twitter posting on July 17 that featured the Nasdaq-100 ratio. The Vancouver-based analyst then provided a more detailed review of both ratios and other stock indicators on his blog, Humble Student of the Markets. (…)
The equal-weighted ratios aren’t the only indicators that suggest stocks are poised to fall, Hui wrote. He cited declines in the percentage of S&P 500 stocks appearing bullish on point-and-figure charts, which track prices without taking time into account, and exceeding 200-day moving averages, which capture price trends over time.
Lance Roberts of STA Wealth Management analyzes margin debt in the larger context that includes free cash accounts and credit balances in margin accounts. Essentially, he calculates the Credit Balance as the sum of Free Credit Cash Accounts and Credit Balances in Margin Accounts minusMargin Debt. The chart below illustrates the mathematics of Credit Balance with an overlay of the S&P 500. Note that the chart below is based on nominal data, not adjusted for inflation.
Margin debt is not a timing tool being coincident. It is, however, the amplifier when things turn sour…as the Chinese recently discovered.
In today’s FT front page:
(…) So markets in corporate junk are no place to be when a return to central banking orthodoxy is finally, tangibly in prospect. At the risk of mixing metaphors, the retreat from bubble territory requires investors to negotiate a financial minefield.
(…) Prices should be discovered in the market, not administered by a government. Actually, we do not all so agree. In response to the incentives set before them, investors pursue the main chance. In the case of European sovereign debt, they continue to buy, more or less without regard to the underlying strength (or lack thereof) of debtor states. They buy because the ECB has pledged to buy.
The phenomenon goes further — much further. Be it the US Federal Reserve, the People’s Bank of China, the Bank of Japan or the ECB, central bankers’ first financial-markets objective is not the integrity of prices and exchange rates. It is rather crisis prevention — to keep the bouncing bond and stock market balls moving in their sanctioned orbits. (For an individual to fix Libor is a crime. For a central bank to suppress European bond yields is an act of financial statesmanship.) (…)
This leads to Bernstein’s view on China equities (via FT Alphaville)
(…) As they say, the best argument going for the Shanghai market at the moment is that the government has your back. Of course, that does introduce a super confusing number of implied options and strategies into the market… you can’t have everything.
But, even taking that put into account, when you exclude financials from the mix you are still buying an expensive market. Not that such a point stopped anyone in the original ramp up. This isn’t a market based on fundamentals. But still:
We quite like their conclusion too, which does, just about, constitute an investment recommendation in a market that isn’t, we’d suggest, ripe for conventional analysis.
It’s Beijing’s price-level after all, we just get to trade in it. Or not:
There is something artificial about assuming that the gauges that were useful leading into the last selloff are going to be of any use next time. Of course, given the unusual manner in which the most recent selloff in China ended (through government intervention and suspension of trading, rather than through price discovery at distressed valuations), arguably the factors that drove weak performance in June and early July are still relevant. In short, there is always the risk that – whatever the last six weeks ends up being remembered as – it isn’t over. (…)
THE COMMODITY ROUT
The El Nino in the Pacific Ocean is building strength unabated, with sea surface temperatures exceeding the 1997 record, indicating the weather pattern will continue into next year.
All key El Nino ocean-monitoring areas have had temperatures more than 1 degree Celsius above average for 10 weeks, Australia’s Bureau of Meteorology said Tuesday in a fortnightly update on its website. That’s two weeks longer than the record in 1997, it said.
El Ninos can affect weather worldwide by baking Asia, altering rainfall across South America and bringing cooler summers to North America. Weather disruptions linked to the pattern can already been seen, HSBC Holdings Plc said last week, citing drought in Asia and typhoons. Tropical commodities including palm oil are to be favored over other raw materials such as gold and copper this half as the El Nino raises risks, according to Oversea-Chinese Banking Corp.
“El Nino is likely to strengthen, and is expected to persist into early 2016,” the weather bureau said.
The Southern Oscillation Index, which indicates the development and intensity of El Nino, is currently at a reading of about minus 20, the lowest value for the event so far, it said. Sustained negative values often indicate El Nino.
El Nino has a 90 percent chance of lasting into next year and there is now an 80 percent chance it may persist into the Northern Hemisphere’s spring, the U.S. Climate Prediction Center said this month. The El Nino of 1997-98 was the strongest on record, according to data collated by the National Oceanic and Atmospheric Administration.