In Part I of this series I explained the risks that investors are compensated for when they invest in Ginnie Mae mortgage backed securities. Since GNMAs are backed by the full faith and credit pledge of the United States government, the primary risks that investors in GNMA securities should be concerned with are pre-payment risk and extension risk. Some of the major factors that influence pre-payment risk and extension risk include the level of interest rates, the historical path of interest rates, housing turnover, the aging of loans, seasonality, and consumer credit conditions. I’ll focus … [Read more...]
Housing Starts Surprise: Will Higher Rates End the Party?
Housing starts in America totaled 1.135 million in April. That's higher than the analyst consensus of 1.025 million that had been projected. The question is, with the housing industry starting to pick up the pace, will the Federal Reserve be willing, or able, to raise rates without ending the party? On the one hand the Fed must raise rates someday or risk not having any ability to fight future recessions by lowering rates. On the other hand, if the Fed raises rates, housing could respond by ending the rally. The balancing act continues. … [Read more...]
$100 Million Room with a View, or Not
You just gotta love the obnoxious real estate prices in Manhattan. Vornado Realty Trust’s 220 Central Park South has already secured $1.1 billion, or one-third of the building, making it already profitable reports the WSJ. “We are doing beyond well,” said Vornado CEO Steve Roth. Yawn. Then you have the penthouse at the building called One57 (how clever) which sold for $100 million in January. The view must be really pretty, or not. Read this comment from a WSJ reader: Actually, looking at the building (One 57) from Central Park on Saturday it appeared that the top ten or so floors were … [Read more...]
5.4 Million Homeowners Still ‘Underwater’
CoreLogic released a report today in which it found that 5.4 million homeowners are still underwater in their mortgages, meaning they have negative equity value in the home. In other words, they owe more on their mortgage than the value of the home itself. Another 10 million mortgaged properties are what CoreLogic calls “under-equitied,” meaning they have less than 20% equity. Despite these dire numbers, nearly 1.2 million U.S. borrowers regained equity in 2014, and the value of homes remaining in negative equity increased by $7 billion in the fourth quarter of 2014. As you can see on … [Read more...]
The Most Bullish Economic Indicator Nobody is Talking About
Household formation in the U.S. is soaring to heights not seen since the economic recovery began. According to the Census Bureau, over the last 12 months, almost 2 million new households were formed in the U.S. Rising household formation is positive for the housing market and the economy. A rising number of households signals greater demand for housing units. The broader economy should also get a kick from rising household formation as newly formed households spend to furnish their homes and stock them with consumables. … [Read more...]
Top 10: America’s Largest Landowners
From conservationists to media moguls to oil barons, ranchers, and timber tycoons, America’s largest landowners are a diverse crowd to be sure. The one thing the top 10 have in common is that they own over 800,000 acres of land in the United States. John Malone, 2,200,000 acres Ted Turner, 2,000,000+ acres Emmerson Family, 1,860,000 acres Brad Kelley, 1,500,000+ acres Reed Family, 1,370,000 acres Irving Family, 1,250,000 acres Singleton Family, 1,100,000 acres King Ranch Heirs, 911,215 acres Stan Kroenke, 848,631 acres Pingree Heirs, 830,000 acres For the top 100, … [Read more...]
Sell Your House and Laugh Your Way to the Bank
I've always felt that buying a home when I was young made sense. I know putting money in the stock market instead of buying a house can be more profitable, but I didn't have any money at the time so that really wasn't an option for me. When I was starting out and working at Fidelity Investments, I worked out a deal to buy a three-family house with very little of my own money. I remember how hard it was asking my dad for a loan (it was less than $5,000) and working out the payment schedule. I rented out the top two units and lived in the bottom one, renting two of the three bedrooms in … [Read more...]
Housing Permits Stagnate, is Regulation to Blame?
A disturbing look is appearing on the long-term chart of residential housing permits granted in the United States. The monthly measure has stabilized near 1 million. That’s about twice as many as the depths of the housing crisis, but not even close to its long term average of 1.4 million permits per month. Worse yet, you can see from the chart that it’s rare for a stabilization like this to have an upward exit. Most stabilizations signal an end of the cycle. In this case it would be the end of a housing cycle that hadn’t even really begun. Could the trouble be in restrictive government … [Read more...]
10 Reasons to Rent
Owning two homes in retirement isn't a good idea. If you’re considering it, then I suggest renting first. Here are some good points from U.S. News and World Report to keep in mind: 1. You spend less on utilities. You still need to pay for utilities when you rent, but chances are, your utility bills would be higher if you owned a home. First, a larger space uses more energy, so you can expect your heating and cooling costs to increase. You may also have to pay for watering your yard, upkeep of a pool or utility bills that were previously included in your rent, such as water, trash or … [Read more...]
Live Where You Want
Finding your perfect retirement spot has never been easier. I love the idea of websites like homeaway and airbnb for retirees looking for a place to retire. Renting before you buy gives you plenty of options to move to another locale to sample and it forces you to live in one spot for more than a long-weekend. The money trap of buying first and living there later is one that can get you stuck living where you don’t want to be. … [Read more...]
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