Tag: Real-Estate ETF’s

Real Estate ETFs React To Rising Mortgage Rates - Part 2

Posted on by Chris Vermeulen

As the Real Estate market shifts away from super-low interest rates and skyrocketing home prices throughout the COVID-19 crisis, we are starting to see the Real Estate ETFs weaken in trend and start to move lower. The recent rising Mortgage Rates will likely continue to weaken sales trends and push home prices a bit lower over the next few months. The Real Estate ETF, IYR, is already reflecting a roughly 10% decline in valuation since early September 2021.

In the first part of this research article, I shared a historical chart of the US Average Mortgage rate and some data suggesting the average US consumer is somewhat bound to certain home price constraints based on Average Income. Typically, mortgage payments should stay below 50% of the borrower’s total take-home income. Depending on the borrower and the home price, many US borrowers may already be priced out of the market – even with 3.25% interest rates.

Peak Home Price Affordability Was Reached In Early 2021

Peak affordability appears to have peaked in December 2020 & January 2021 – just after the COVID-19 crisis. This likely correlates to the lower interest rates, at one point below 2% in most of the US, for home buyers while home prices were 20% to 40% lower than they currently are in most areas.

Housing - Home Sales

(Source)

Case/Shiller National Home Price Index Has Skyrocketed 30% Higher Since May 2020

A great measure of the National Average Home Price is the Case/Shiller US National Home Price Average Index. From the chart below, you can see the almost parabolic rise in home prices after the March 2020 COVID-19 event. This incredible rally represents a 30%+ increase in home average US home prices in a little over 13 months. Continue reading "Real Estate ETFs React To Rising Mortgage Rates - Part 2" →

Real Estate ETFs React To Rising Mortgage Rates - Part 1

Posted on by Chris Vermeulen

US Mortgage Rates have risen from levels near 2% to 2.25% earlier in 2021 to levels now above 3%. This increase in the cost of borrowing money for home purchases has a downward effect on home prices and sales. The affordability of homes is directly related to the sales price and the cost of the mortgage to secure the purchase of the home. As interest rates rise, home affordability becomes less attractive and feasible for many potential buyers, and home prices start to fall in an attempt to allow a quicker sale.

The Making of Another US/Global Housing Crisis

The easiest way to think about this is to consider the ability of buyers to secure and satisfy mortgage payments for homes. The more expensive the sales price of the home and the interest rate of the loan is, the more likely the affordability of the home is going to be perceived as undesirable.

As concerns related to the US economy, and the indication by the US Federal Reserve that rates will likely start to increase before the end of 2021 or very early in 2022, mortgage rates have already increased by nearly 45% over the past 60 days. A $500k home would have cost about $2500 a month at a 2.25% mortgage rate (including property taxes, homeowners insurance, mortgage insurance, and principal & interest). That same $500k home costs more than $2700 a month at a 3.25% interest rate (including all fees and costs).

US Interest Rate Chart - Home Buying

Over the lifetime of the loan, the total costs of buying the $500k home have now increased by more than $70k for the buyer. If rates rise to 4.25%, the new monthly cost of that same $500k home rises to nearly $3000 per month. Raising the total cost of buying that $500k home by more than $180k over the lifetime of the loan for the new buyer. Continue reading "Real Estate ETFs React To Rising Mortgage Rates - Part 1" →

Are Real Estate ETFs The Next Big Trade? - Part 2

Posted on by Chris Vermeulen

In part I of this research post, we highlighted how the shifting landscape of the US real estate market may be setting up an incredible trading opportunity for technical traders. It is our belief that the continued capital shift which has been driving foreign investment into US assets, real estate, and other investments may be shifting away from US real estate as tell-tale signs of stress are starting to show. Foreclosures and price drops are one of the first signs that stress exists in the markets and we believe the real estate segment could be setting up for an incredible trade opportunity.

The Proshares Ultrashort Real Estate ETF (SRS) has recently completed a unique “washout low” price bottom that we believe may become an incredible trading opportunity for technical traders. If the US Fed pushes the market into a panic mode, sellers will become even more desperate to offload their homes and buyers will become even more discerning in terms of selecting what and when to buy.

Our opinion is that the recent “washout low” price bottom in SRS is very likely to be a unique “scouting party” low/bottom that may set up a very big move to the upside over the next 4 to 12+ months. If our research is correct, the continued forward navigation for the US Fed, global central banks and the average consumers buying and selling homes is about to become very volatile.

If SRS moves above the $25.50 level, our first upside Fibonacci price target and clears the $24.25 previous peak set in April 2019, it would be a very clear indication that a risk trade in Real Estate is back in play. Ideally, price holding above the $21.65 level would provide a very clear level of support negating any future price weakness below $21.50. Continue reading "Are Real Estate ETFs The Next Big Trade? - Part 2" →

Are Real Estate ETFs The Next Big Trade?

Posted on by Chris Vermeulen

A subscriber recently mentioned getting into a real estate ETF so we started going over the data which may suggest the Real Estate sector could become the next big trade over the next 12+ months. The news that the US Fed may decrease rates in an attempt to front-run global economic weakness and real estate market weakness may result in a waterfall event in local and regional real estate markets. This type of event could become a fantastic trading opportunity for technical traders.

Recently we have been talking about the unit and very different opportunities in other physical assets like precious metals. Each metal is unique for market timing has its own personality. Our gold predictions are an eye-opener, why silver is awesome, and our most recent analysis on platinum is timely.

Overall, our research has been focused on one of the hottest markets anywhere in the US, California. Los Angeles, Ventura County, Orange County, San Diego, and San Francisco make up the entire massive Southern California real estate market. The California real estate market is a fairly strong indicator for weaker market segments because the number of transactions taking place across the 400+ miles spanning San Francisco to San Diego represent multiple trillions of dollars, vast segments of consumers and types of housing as well as an incredibly diverse economic landscape ranging from coastal regions, farming regions, cities, technology hubs, agriculture and dozens of others (source).

Our concern is that a rate decrease by the US Fed may be interpreted as a “move to attempt to abate fear” instead of a “move to support the markets”. If this decrease in rates does happen and at-risk homeowners fear the Fed is trying to push buttons to adjust the consumer environment toward a “buying bias” and sellers become scared, then the race to sell faster (decreasing prices to attract buyers) may become the norm. In other words, in an effort to support the markets, the Fed could take actions that remove the floor from the markets as sellers attempt to get the best price possible before buyers become aware of the “race to the bottom” in terms of pricing. Continue reading "Are Real Estate ETFs The Next Big Trade?" →

Three Industries That Will Suffer From A Fed Rate Hike And Which ETFs Avoid

Posted on by Matt Thalman

Matt Thalman - INO.com Contributor - ETFs


In recent weeks, the likelihood of a Federal Reserve interest rate hike has been increasing. I recently pointed out a few reason on why I believe the Fed will increase rates at the upcoming December meeting, which you can read here. I also have pointed out a few industries that would benefit from a rate hike and which corresponding ETFs that could benefit from such a move by the Fed.

So, today let's take a look at a few industries that will likely suffer from an interest rate increase and which ETFs you may want to avoid if the Fed makes a move. Continue reading "Three Industries That Will Suffer From A Fed Rate Hike And Which ETFs Avoid" →