Best of the Week
Most Popular
1.The Greatest Stock Market Crash Of Your Life Is Just Ahead… – Warns Harry Dent - GoldCore
2.Budget 2016: Borrowing, Lifetime ISA, House Prices, Economy, Syria, Brexit and Stocks - Nadeem_Walayat
3.Gold Price Intermediate Top - Clive_Maund
4.Brussels Terror Attacks, Death of the European Union, BrExit Wake up Call - Nadeem_Walayat
5.Stock Market Maybe This Time is Different? - Tony_Caldaro
6.UK House Asking Prices Break Above £300k! Housing Market Paralysis - Nadeem_Walayat
7.A Big Reason Why Silver Price Is Set To Soar - Hubert_Moolman
8.The Financial Crisis Has Just Begun; Is The American Dream Is Over? - Chris_Vermeulen
9.Gold Stocks Spring Rally - Zeal_LLC
10.GLX, GLDX, Baby Gold Bull Market Stillborn? - Rambus_Chartology
Last 7 days
Markets At Crossroads: Huge Moves Brewing In Stocks And Gold - 6th May 16
The Bitcoin Drama Continues: Craig Wright Disappears and Andresen Says He Was Bamboozled - 6th May 16
When Gold Confiscation Is a Personal Choice - 6th May 16
Stock Market Getting Ready for the Next Flash Crash - 6th May 16
arclays 100% Mortgage Pours Fuel on UK House Prices Bull Market - 5th May 16
Central Planners Versus Contrarian Logic - 5th May 16
Euro Desperation will achieve Self Destruction - MAP Wave Analysis - 5th May 16
Stocks Extended Their Short-Term Downtrend But Will They Continue Lower? - 5th May 16
Monetary Liquifaction, Gold And The Time Of The Vulture - 5th May 16
US 2016 Election Is a Global Risk - 5th May 16
A Few Facts About Gold That Nay-Sayers Conveniently Ignore - 5th May 16
Save the Environment and Your Retirement: Sell Tesla - 4th May 16
Silver Bullion Has Key New Player – China Replaces JP Morgan - 4th May 16
Gold Stock Picks Up Over 400%, What's Next ? - 4th May 16
U.S. Treasury Secretary Jack Lew: Puerto Rico Needs Urgent Action - 4th May 16
Technical Trading Mastery for Traders & Investors - 4th May 16
Derivatives Crisis Of Banks…Worldwide - 3rd May 16
Bank of North Dakota Soars Despite Oil Bust: A Blueprint for California? - 3rd May 16
Stock Market Technical Analysis - 3rd May 16
Central Banks Need a Higher Gold Price : Hello GATA - 3rd May 16
A Currency War Battle That Europe and Japan Can’t Afford To Lose - 3rd May 16
When the Truth is Found to be Lies, Confidence in Currency Dies - 2nd May 16
How Brexit Could Help All of Europe - 2nd May 16
US House Prices Outpacing Official Inflation Rate, Household Income - 2nd May 16
USD Still Declining... - 2nd May 16
Gold & Silver Rally Huge as Central Bankers & Analysts Flub - 2nd May 16
Stock Market Bounce Day - 2nd May 16
Stock Market Uncertainty Following Two-Month Long Rally - Will It Continue? - 2nd May 16
Stock Market Correction Underway "Upside Objective Reached" - 2nd May 16
USD, Yen and an ‘Inflation Trade’ Update - 2nd May 16
Gold Commitments of Traders and More - 1st May 16
The Magic of Gold Ratio Charts - 1st May 16
Consensus Forming: China Heading Back Into Financial Crisis - 30th Apr 16
The Next Technical Price Targets for Gold & Silver - 30th Apr 16
Stock Market Downtrend Should be Underway - 30th Apr 16
Gold And Silver – A Clarion Alarm Call For All Paper Assets - 30th Apr 16
US Economic Statistics LIES, LIES AND OMG, MORE LIES - 30th Apr 16
Stock Market Strong Elliott Wave Relationship is Developing - 29th Apr 16
Fed's Kaplan: Brexit to Factor in US June Interest Rate Decision - 29th Apr 16
Silver Miners Strong in Grim Q4 - 29th Apr 16
Is Silver a better bet than Gold in the Near Future? - 29th Apr 16
How to Use the CoT Report in Gold Investing? - 29th Apr 16
Sri Lanka is Intriguing: Areas to Consider for Value Investing - 29th Apr 16
Gold “Chart of The Decade” – Maths Suggest $10,000 Per Ounce Says Rickards - 29th Apr 16
Are We or Are We Not in a New Gold Bull Market? - 29th Apr 16
Silver: The “Five Year Plan” and the Great Leap Forward - 28th Apr 16
Michael Hudson: The Wall Street Economy Has Taken Over The Economy and Is Draining It! - 28th Apr 16
AUD/USD - Trend Reversal or Just a Bigger Pullback? - 28th Apr 16
A Gold Revaluation Could Transform Your Financial Status - Overnight - 28th Apr 16
Monetary Policies Misunderstood - 28th Apr 16
Gold Bullion vs Gold Miners - 28th Apr 16
OECD Suggests BrExit Would Cut Net Migration by 1.2 Million by 2030 - 28th Apr 16
MP Naz Shah Punished for Tweets Made During Israel's Genocide of Gaza Palestinian People - 28th Apr 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Catching a Falling Financial Knife

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