Matrix Blog

Posts Tagged ‘Forbes’

Headline: Real Estate Sells Newspapers

August 29, 2005 | 6:36 pm | |

netnesting

The interest in real estate is keeping newspapers seeing black ink. [Note: Paid Sub.] Besides homeowners who have seen the value of their properties rise over the past several years, it is newspapers, specifically classified advertising, that have enjoyed the rise but the recovery has been slow.

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Real estate comprises 1/4 of all classified advertising. Gains in real estate advertising has possibly masked increased competition from web site listings. Correspondingly, newspaper stocks have not done well in 2005.

Could the intensity of bubble talk be more influenced by the thirst for dollars than we give it credit for? Could the media make the bubble a self-fulfilling prophecy?


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Boom as in Baby

August 23, 2005 | 10:59 pm |

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Scott Reeves contends, in an article posted on Forbes.com: Don’t Believe The Hype that the booming real estate market is driven by fundamentals including low mortgage rates, increased employment and demand (note: demographics). Its not driven by investors.

Although NAR indicates that 23% of home purchases in 2004 were made by investors, Freddie Mac statistics indicate that the length of homeownership has increased from 6.5 years in the first half of 1999 to 7 years in the first half of 2004. Although this argument doesn’t reflect the recent uptick in housing prices in 2005, it could infer that the market is not being determined by runaway investors aka speculators aka flippers.

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In fact, NAR says that no more than 3% of all purchasers sell their homes in less than a year.

This is consistent with…

the cascade of baby boomers in their prime earning years who are beginning to think about retirement. Many boomers, real estate agents say, buy a second home with the intention of retiring there–but most are more than happy to sell it in a few years if plans change or if the price is right.

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For Keeping the Rain Out, Housing Beats Stocks

August 19, 2005 | 7:36 am |

The article in the NY Times today “In the Long Run, Sleep at Home and Invest in the Stock Market” compared the stock market and real estate as an investment vehicle. The volatility of stocks over the past decade has faciliated a change in the perception of housing as an investment. With significant price appreciation over the past several years, that argument has been made even stronger.

As a pure investment, housing lags behind stocks in a long term window. However, homeowners generally calculate their return on investment off of the change in sales price or from their leveraged initial investment.

But when calculating the returns of both, which is tricky to compare, this quantification of the “use and enjoyment” of the asset makes real estate in this context, a better overall investment.

The use of the asset as a home, is where the return in housing exceeds the stock market. One way to figure the value for the use and enjoyment of the house is to estimate its rent. This quantifies the actual occupancy but falls short since it doesn’t quantify intangibles of pride of ownership, the flexibility to customize the home to your personal needs or style, etc. Therefore, the rental factor likely understates the value of using the home, suggesting that the returns on housing would be even higher.


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Bond Market Likes Core Inflation Stats

August 17, 2005 | 7:49 am |

The US Labor Department released their CPI report which indicated that U.S. CPI was up 0.5% in July, largely on energy costs. CPI (Inflation) is up 3.2% over the past year, as compared to 2.5% over the prior year. Still historically low but a cause for concern. Housing accounts for 40% of overall CPI.

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It is interesting to note that the previous [table from the BLS.gov site] the year over year change in CPI was actually much higher in February through March.

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Core inflation, which excludes food and energy costs however, was virtually flat at 0.1%. With core inflation rates so low, the bond market now seems to view rising energy costs as predictive of softer future spending, and less of a red flag for inflation.

This may influence long-term mortgage rates to stay at low levels since bond investors still don’t appear to be overly concerned about inflation at this point. Mortgage rates have actually trended down since the end of the first week of August.

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