Investor Intel for August
There’ve been no lazy dog days of August for U.S. stocks, as fears of slowing growth in China—the world’s second largest economy—and the subsequent devaluing of their currency put pressure on international markets. The S&P 500 just suffered its worst month since May 2012, plunging to dramatic lows in the span of a day. The wild swings of the indexes have put investors on edge, despite data showing U.S. gross domestic product rose at a 3.7 percent annualized rate.
This extreme market volatility has some investors eyeing real estate as a more stable investment, as the housing sector has held strong and continues to drive the U.S. economy. Case-in-point: the S&P/Case-Shiller U.S. National Home Price Index recorded a slightly higher year-over-year gain with a 4.5 percent annual increase in June 2015 versus a 4.4 percent increase in May 2015. Denver, San Francisco, and Dallas reported the highest year-over-year gains among 20 major U.S. cities with price increases of 10.2 percent, 9.5 percent, and 8.2 percent, respectively. Preliminary reports for July suggest home prices have decreased slightly, however this is being seen as a leveling off after rapid appreciation rather than an impending bubble.
Existing home sales steadily increased for the third consecutive month in July to a seasonally adjusted annual rate of 5.59 million, remaining at the highest pace since February 2007, according to the National Association of Realtors. On the flip side, sales to first-time buyers have fallen to the lowest level since January, likely caused by low inventory levels and rising prices. First-time buyers will account for 18 percent of new-home sales this year, estimates the National Association of Home Builders. That is well short of their share of 25 percent to 27 percent from 2001 to 2005.
On the foreclosure front, there was a total of 124,910 U.S. properties with filings (default notices, scheduled auctions and bank repossessions) in July, up 7 percent from the previous month and up 14 percent from a year ago, according to RealtyTrac data. July marks the fifth consecutive month with a year-over-year increase in overall foreclosure activity following 53 consecutive months of decreases. Why the sudden increase? Explains Daren Blomquist, vice president at RealtyTrac, “[T]he recent rise in bank repossessions represents banks flushing out old distress rather than new distress being pushed into the pipeline.” Foreclosure starts in July were indeed at the lowest level since November 2005.
Rising housing costs are bumping up inflation for consumers, despite only very mild price increases for many goods. This in turn is raising rent prices, evidenced in a year-over-year increase of 3.1 percent in July, the largest annual increase since early 2008.
U.S. personal income also went up 0.4 percent in June, beating the 0.3 percent expected, and consumer spending is expanding at a 2.9 percent annual rate. The overall economy is growing at a 2.3 percent pace, according to the Commerce Department’s second-quarter gross domestic product report. And this has consumers feeling more optimistic about the economy. The Conference Board’s Consumer Confidence Index surged over 10 points to 101.5 in August, surpassing estimates.
Despite the strong housing sector and consumer confidence, chances the Fed will raise rates in September plunged along with the stock market, with rates now looking to rise in December or January. What is certain, however, is that in times of market volatility, it’s a good time to be a real estate investor.
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