Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
There was a good article in Kiplinger recently about the housing bubble, and I thought I’d share their thoughts…
They talked about the way that the housing market this year has shown stronger-than-expected price growth but weaker-than-expected existing home sales and residential construction.
That’s no surprise to anyone paying attention.
For the full year, they’re looking for housing starts to increase by only 1.5% over last year as supply issues continue to plague many markets.
Also, they reported that single-family new construction starts fell 4.6%, while multifamily starts declined by 6.2%, and that total starts have now declined in 5 of the past 6 months.
Price gains, however, picked up in August and they’re forecasting that they will maintain a similar pace for the rest of 2017. The S&P CoreLogic Case-Shiller National Home Price Index rose 6.1% in August, faster than the 5.9% increase in July.
Pushing against this however, mortgage rates have begun to rise, which they believe will put a damper on price gains.
And they stated the obvious again – that the current run-up in home values, while great for homeowners and investors, may pose a hurdle for people looking to buy for the first time, particularly if mortgage rates continue to rise while the supply of homes on the market remains lean.
They also believe that existing home sales will stay sluggish in coming months as the tight inventory struggles to keep up with demand.
They rose 0.7% from August, and explained that existing home sales are trending down from earlier this year because of the low supply of homes for sale. Case in point: inventory in September was 6.4% below a year ago.
Finally, they’re looking for new home sales to rise 9% in 2017 as the positive trend continues, as they jumped 18.9% in September.
I also read a good summary of the performance of key economic indicators, which appear to be good news for the real estate market. As of last month here’s where they stand:
Corporate Earnings – POSITIVE
Corporate earnings are one of the stock market’s most important indicators since they show the health of corporate America. If earnings are expanding, the stock market generally will be trending upward over the long-term.
If earnings are trending down over the long term, the stock market usually follows. According to FactSet, for Q4 2017, the estimated earnings growth rate for the S&P 500 is 11.4%.
With Q1 2018 corporate earnings for the S&P 500 expected to grow 10.7% and revenue growth expected to climb 6.3%, “Corporate Earnings” are rated positive.
Manufacturing - POSITIVE
The ISM Manufacturing Production Index is at a current level of 62.20, up from 61.00 last month and up from 52.80 one year ago.
This is a change of 1.97% from last month and 17.80% from one year ago. This index is above the average of 50 – meaning that U.S. manufacturing is expanding.
Unemployment – POSITIVE
US Change in Nonfarm Payrolls is at a current level of -33.00K, down from 169.00K last month and down from 249.00K one year ago.
This is a change of -119.5% from last month and -113.3% from one year ago.
This monthly decline in employment was an anomaly created by the 3 hurricanes that hit the United States in September. Quarterly growth was still positive.
US Unemployment Rate is at 4.20%, compared to 4.40% last month and 4.90% last year. This is lower than the long-term average of 5.80%.
US Average Weekly Earnings - POSITIVE
US Average Weekly Earnings is at a current level of 913.32, up from 909.19 last month and up from 887.86 one year ago.
This is a change of 0.45% from last month and 2.87% from one year ago. It’s a good sign that this is improving.
GDP Growth – POSITIVE
US Real Gross Domestic Product Growth is at 3.10%, compared to 1.20% last quarter and 2.20% last year. This is lower than the long-term average of 3.22%.
This indicator is one of the primary elements the U.S. government uses to determine a recession if GDP declines for 2 consecutive quarters.
So looking at the data…
Things look good across the board for real estate.
It will be interesting to see how the sales figures for Christmas come in, because that will be a strong indicator as to whether or not the population is benefitting from all of this good news.
Your Thoughts?
What’s your take on all these stats? Share below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.