Best of the Week
Most Popular
1.The Trump Reset, US Empire's Coming Economic, Cyber and Military War With China (2/2) - Nadeem_Walayat
2.Now Is the Time to Buy Gold - 5th Jan 17 - John Grandits
3.CIA Planning Rogue President Donald Trump Assassination? Elites "Manchurian Candidate" Plan B - Nadeem_Walayat
4.The Trump Reset - Regime Change, Russia the Over Hyped Fake News SuperPower (Part1) - Nadeem_Walayat
5.Most Popular Financial Markets Analysis of 2016 - Stock Market Crash Postponed Again - Nadeem_Walayat
6.No UK House Prices Brexit Crash 2016 Despite London Weakness, Forecast 2017 - Nadeem_Walayat
7.President Trump Understands the NSA, CIA... LIE, America's Intelligence Agencies Crime Syndicate! -Nadeem_Walayat
8.President Donald Trump's 2017 New Year Message, BBC Fake News, Was 2016 a Dream? - Nadeem_Walayat
9.Major Stocks Bear Market Still Looms - Zeal_LLC
10.Biased 2017 Forecasts - Debt, Housing and Stock Market (1/2) - James_Quinn
Last 7 days
US Stock Market Update as the Trump Inauguration Approaches - 17th Jan 17
The American Crisis - Common Sense 2017 - 17th Jan 17
Obama Leaves, Hope Arrives, Will Stupid Stay? - 17th Jan 17
Damage Inflicted by Precious Metals Manipulation Is in the “Multi Billions” - Keith Neumeyer - 17th Jan 17
Gold Price Forecast 2017 Update - Video - 17th Jan 17
The Story of the U.S. Regime Change Plan in the Philippines - 16th Jan 17
Gold Price 2017 Trending Towards $1375 as Forecast - 16th Jan 17
'Deep State' CIA Director States We are Not NAZI's, Warns Trump Does Not Understand Russian Threat - 15th Jan 17
UK House Prices Forecast 2017 - Crash or Bull Market? - Video - 15th Jan 17
SPX Stocks Bull Market Update - 14th Jan 17
President Trump vs the Deep State that Hides in Plain Sight - 14th Jan 17
The Impact of Sir Alex Ferguson's Retirement on Man United's Share Price - 14th Jan 17
What Can Stock Market Tell You About Politics? - 13th Jan 17
Big Gold Buying Coming 2017 - 13th Jan 17
A Bullish Case for Gold 2017 - 13th Jan 17
Will Stocks Bull Market Continue to Charge or is it Time to Sell the News - 13th Jan 17
Gold and Silver Off To Shining Start to 2017 - 13th Jan 17
Gold’s Fundamental Outlook for 2017 - 13th Jan 17
Is trading stocks and shares just as luck-based as roulette? - 13th Jan 17
Trump CIA Like Nazi Germany - Fake MI6 Intelligence leaked to Fake News Mainstream Media - 13th Jan 17
USD in Decline. SPX and TNX May Follow - 12th Jan 17
CIA War On Trump - Leaks Fake MI6 Intelligence to Fake News Broadcast Media - 12th Jan 17
Registered Address.co.uk London Business Registered Office Address Mail Forwarding Review - 11th Jan 17
13 Contrarian Economic Predictions For 2017 - 11th Jan 17
10 Potential Black Swans and Opportunities for the US Economy in 2017 - 11th Jan 17
How to Get a Bird of Paradise Plant to Flower - UK Growing Video - 11th Jan 17
The No.1 Energy Stock To Buy Right Now - 10th Jan 17

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

What Can Stock Market Tell You About Politics?

Chinese Sovereign Fund Shifts Focus to U.S. Real Estate

Housing-Market / US Housing May 29, 2013 - 01:42 PM GMT

By: InvestmentContrarian

Housing-Market

Sasha Cekerevac writes: One of the biggest fears for investors is to buy at the top of any market. This is a natural reaction because most of us were taught since childhood to do the opposite. For example, my parents always emphasized the importance of buying products when they’re on sale.

Some people view the significant rise in home prices with apprehension, believing that these prices have risen too far. While it is true that home prices have risen substantially, as long as interest rates remain low, there is potential for further capital appreciation.


Americans aren’t the only ones considering real estate as part of their investment strategy. Recent reports state that China is considering diversifying its foreign exchange reserves, totaling approximately US$3.4 trillion, into U.S. real estate. (Source: Yang, S., et al., “China said to study US property investments with reserves,” Bloomberg, May 27, 2013.)

With the Chinese investment strategy in the past based primarily on investing in U.S. government debt, considering how little this asset class is currently yielding, it does make sense for the Chinese to look at diversifying into other sectors. When looking at the potential for home prices to continue rising versus U.S. government debt, this diversification seems quite prudent.

The ramifications for American home prices could be substantial. It really depends on how China goes about allocating its investment strategy. There are already shortages in many real estate markets across the U.S., which is part of the reason home prices have moved up so quickly.

The Chinese sovereign wealth fund could look at taking stakes in companies that are already involved in real estate and that benefit from higher home prices. Recent statistics show that mortgage quality has risen considerably over the past couple of years.

The latest data from Lender Processing Services Inc. shows that first-time home loan delinquencies dropped to 0.84% in March, which is the first time since 2007 that this level has been below one percent. In comparison, in 2009, first-time home loan delinquencies peaked at 2.89%. (Source: Gittelsohn, J., “Housing Crash Fades as Defaults Decline to 2007 Levels,” Bloomberg, May 6, 2013, accessed May 27, 2013.)

Another positive aspect supporting home prices for the future and benefiting firms that are already involved in real estate as part of their investment strategy is that mortgage quality has significantly improved. Essentially, people who can’t afford a home right now aren’t getting mortgages, which is how it should be.

The latest data by the Federal Housing Administration (FHA) shows that 97% of borrowers from the FHA in the third quarter of 2012 had a credit score in excess of 620, in comparison to only 53% in the fourth quarter of 2006.

If the Chinese sovereign wealth fund decides to implement an investment strategy that incorporates American real estate, this would be a net benefit to home prices in general. It’s simple economics: an increase in demand with stable supply will, in turn, increase pressure on home prices.

Companies that have a large investment strategy in real estate will also benefit from higher home prices, even if they do not receive a direct investment from Chinese sovereign wealth funds. The Blackstone Group L.P. (NYSE/BX), which I’ve mentioned several times when it was trading at far lower prices, would be a beneficiary, since it owns an enormous amount of real estate.

The Blackstone Group was one of the earliest and most astute firms in creating an investment strategy built on a rebound in home prices. While the company is currently making a tremendous amount of money in rent, the value of its portfolio of properties will increase substantially if home prices continue their upward trajectory.

While these reports about China adjusting its investment strategy and incorporating real estate are not definitive and are, at this point, only speculative, if they prove to be true, China’s adjustments would certainly add an additional push for U.S. home prices going forward.

Source: http://www.investmentcontrarians.com/...

By Sasha Cekerevac, BA
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

About Author: Sasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what to look for as an investor. His newsletters provide an experienced perspective on what the big funds are planning and how you can profit from it. He is the editor of several of Lombardi’s popular financial newsletters, including Payload Stocks and Pump & Dump Alert. See Sasha Cekerevac Article Archives

Copyright © 2013 Investment Contrarians - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Investment Contrarians Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife