Situs Newswatch 9/21

Home Builder Confidence Through the Roof

Home builder confidence surged in September to match its highest reading in a decade.

The National Association of Home Builders’ index jumped to its highest level since last October, which was the highest since the height of the housing boom.

“As new housing starts go, so goes the economy,” says Ken Riggs, President of Situs RERC. “New home construction is a major driver of the economy, especially local economies.”

The NAHB’s gauge of current sales conditions soared six points to a cycle high of 71 and the index of future sales jumped five points, also touching 71.

“Housing represents a significant portion of GDP and contributes to tax revenues at the national, state and local levels, says Situs’ Riggs. “Building new homes leads to job growth, not only for construction workers, plumbers and electricians but also for those in manufacturing, transportation and retail as well as the professionals who support these industries.  The strength of the ‘new housing starts’ reflects a peek into the future and tells us that the economy may be ready to put the credit crisis behind us and move into the next business cycle.”

Real Estate ETF Draws Hot interest 

The official launch of the S&P 500 real-estate sector—the first S&P 500 sector to be added since 1999—has driven a hefty amount of attention to the Real Estate Select Sector SPDR exchange-traded fund XLRE, the biggest ETF to track the index directly.

The ETF has seen massive inflows recently, with more than $2.8 billion pouring into it over the past week—by far the most of any exchange-traded fund, according to ETF.com data. The fund currently has $2.85 billion in assets under management.

The real-estate fund was developed in anticipation of the 11th sector, which was officially added to the lineup on Monday, said David Mazza, head of ETF and mutual fund research at State Street Global Advisors. The SPDR real estate ETF made its debut on Oct. 8, 2015, and has risen 7.4% since then. It rose 1% on Monday, on what ended up as a flat day for the equity market. Sentiment over the sector was boosted after a reading of home-builder confidence surged to match its highest reading in a decade.

SPDR ETFs are among the most popular ways for investors and institutions to get exposure to a particular equity sector within the S&P 500, of which there had previously been 10. The SPDR S&P 500 ETF SPY, +0.10% which tracks all of the components of the S&P 500, is the largest exchange-traded fund on the market, with nearly $200 billion in assets under management.

The components of the real estate group had previously been part of financial sector, and the inflows into real estate over the past week is mostly due to a special dividend of about $2.8 billion from the Financial Select Sector SPDR Fund XLF, +0.68% That ETF has seen outflows of $3.57 billion thus far this year, with $1.35 billion of that coming this past week. For 2016, the financial sector ETF has seen the sixth-highest outflows of any fund, according to FactSet data.

The financial sector ETF is up 2.3% since Oct. 8, underperforming both the real-estate fund and the SPDR S&P 500 ETF, which is up 7% over that period.

read more: Market Watch

Sears Rich in Commercial Real Estate Despite Closing 64 Kmart Stores

Every round of store closings sends the same whispers echoing through Wall Street — how much longer can Sears hang on?

Yet despite the latest chatter about the chain’s inevitable demise, sparked this time by news it will shutter 64 more Kmart stores in mid-December, analysts say the company has plenty of levers to pull to stay afloat this Christmas and beyond.

They include a robust real estate portfolio estimated to be worth roughly $4.5 billion; the prospect of additional cash infusions from CEO Eddie Lampert’s hedge fund ESL Investments; and a potential sale of its Kenmore, Craftsman and DieHard brands.

That’s not to say the company isn’t edging closer toward a potential bankruptcy. Sears has $3.5 billion in long-term debt on its balance sheet, and is expected to report a $1.5 billion loss in operating cash flow this year, according to Moody’s. That’s on top of a $2.2 billion deficit last year, the ratings agency said.

The once-venerable department store chain also owes a minimum $596 million in pension contributions for 2016 and 2017 combined, and has a total unfunded pension and post-retirement obligation of $2.1 billion, according to Moody’s.

The firm last week downgraded its speculative-grade liquidity rating on Sears, saying it’s uncertain about Kmart’s long-term viability.

read more: CNBC

Home Flipping Like it’s 2006 All Over Again

Home flipping, a staple of the pre-recession real estate boom, is on the rise again.

Romanticized on reality TV as an exciting path to quick profits, flips are defined as a resale within one year after buying the house.

The reality on the ground in Queens, NY, where flips have spiked 10 percent in the first half of 2016, and Long Island, where they have vaulted nearly 40 percent, is the loss of hundreds of affordable homes for low- and middle-income New Yorkers.

The continuing foreclosure crisis, combined with an economic recovery that has excluded many New Yorkers, is fueling the uptick.

In the second quarter, 46 percent of Long Island home flips, and 34 percent of those in the five boroughs, were purchased as distressed properties, according to Attom Data Solutions.

By some measures, the distressed percentage in New York City is even higher.

More than half of the one-to-three-unit properties flipped in 2014-15 received a foreclosure notice within the last three years before the sale, according to the Center for New York City Neighborhoods, or CNYCN.

Nearly 300 homes were flipped in Queens, and 650 on Long Island, in the first half of 2016.

“There’s a bit of a surge in flipping,” said Daren Blomquist, senior vice president at Attom, noting that Long Island is “getting close to peak levels of flipping [it had] back in the last housing boom.

read more: NY Post

Starter Homes Go the Way of Landline Phones

The concept of a “starter home” is quickly becoming a real estate relic, like landline phones. Time was, young families with average incomes who were shopping for a first house would choose a small one in an affordable neighborhood — maybe with just a hint of a yard and a carport, rather than a half-acre lot and a two-car.

Today, first-time homeowners are buying more square footage and putting down roots, in what may mark a fundamental change in family housing.

Rather than buying a starter home and planning to upgrade in five years or so, first-time homeowners are buying and staying put, according to research conducted by the National Association of Realtors.

In fact, in 2013, first-time buyers purchased homes with an average 1,845 square feet, while the average home in the U.S. is just 1,819 square feet, according to data from the Census Bureau’s American Housing Survey.

This State Has the Most Millennials Living With Their Parents

Which state has the highest percentage of grown kids still living with their parents?

And the answer is —- the Garden State, New Jersey!

Census data released on September 15 shows 47% of New Jersey’s 18-to-34-year-olds are living with mom and dad. Yep, almost half.

The Garden State has the highest proportion of so-called boomerang kids, but it’s not alone. More than 40% of Connecticut and New York millennials are living with their parents as well. And California and Florida aren’t too far behind.

Nationally, just over a third of adults under 35 are living in their parents’ home. The Failure to Launch phenomenon has been growing globally for enough time that the home stayers have a series of nicknames around the world, including the charming “parasite singles” in Japan.

The Census data, which is gathered from the American Community Survey, doesn’t show how many of these stay-at-homes are at the younger end, say, 18-to-21-year-olds who might be living at home while they finish their education. But it’s probably not coincidental that these states are home to cities with high real estate prices. North Dakota, which has low unemployment and low real estate prices, also has one of the lowest rates of grown kids living with their parents.

Then again, so does Washington, D.C.

Silicon Valley Wants Homes, Not Jobs

The capital of Silicon Valley is ready to abdicate. A few weeks ago, bizarre as it might seem, Palo Alto Mayor Patrick Burt came out against jobs. “We’re looking to increase the rate of housing growth,” he told Curbed San Francisco, “but decrease the rate of job growth.”

Think about that. Almost every mayor in the U.S. is wracking his brain trying to entice jobs into town. Yet Palo Alto—3.8% unemployment, a magnet for the geek class, the place that nurtured Facebook—is telling everyone else to get lost.

I had to meet this guy. Near City Hall, I pulled my (proudly gas guzzling) car into a spot between a white Tesla and a black Tesla. This was the Coral parking zone, giving me two hours before I had to move to the Lime zone. Nearby stood the Epiphany, a new $800-a-night hotel, just down from the ancient House of Foam, fulfilling all your polyurethane and polystyrene needs. Next to the Verizon Wireless store, the old Stanford Theater was showing a Ruth Chatterton double feature. Palo Alto, 65,000 people sitting on 26 square miles of some of the most valuable land anywhere, is certainly a town of contrasts.

The city doesn’t have a mayoral election. Instead, the council members, some of whom identify as slow-growth “residentialists,” install one of their own as mayor for a one-year term. Now it’s Patrick Burt’s turn, and he’s making the most of it. “Big tech companies are choking off the downtown,” he told the New York Times.

read more: Wall St Journal