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The US housing market continues to gain steam: New home sales for June were up by 8.3% to a rate of 497,000 units annually — the highest level in five years — despite rising mortgage rates. Compared with June last year, single-family home sales were up 38.1 percent, the largest increase since January 1992, writes Reuters. Bill McBride notes that the supply of new homes has also returned to normal (after peaking in 2009) and, furthermore, even with the increases, sales rates are just at the low levels of previous recessions, which “suggests significant upside over the next few years”.
Who, though, is doing all of this buying? Back in May the buy-to-rent business was exploding, fueled by Wall Street-backed institutional investors like the Blackstone Group and the aptly named American Homes 4 Rent, the latter of which announced an IPO last week. Barry Ritholtz argues this can’t possibly continue, pointing to the massive surge in rental properties on the market in Scottsdale, Arizona in the last four months: “How the hell can they be making money when there are so many empty houses cooking in the desert sun?”
The Los Angeles Times reported last week that investors continue to buy, albeit at a slightly slower pace, even after a nearly 30% average price increase in Southern California in the last year. Buyers who don’t intend to live in the home accounted for 29% of purchases in June, and more than 30% of purchases in the region were in cash. But that seems to be changing: “The smart money has left the building,” broker Glenn Kelman told the LA Times.
Meanwhile, individuals seem to be taking more risks in the housing market. CNBC reports that 136,184 homes were flipped in the last six months, up 19% from this time last year, and 74% from the first half of 2011. Adjustable-rate mortgages, in which rates change after a fixed period of 5-10 years, are also more popular than they have been since 2008, according to Bloomberg.
However, lest your takeaway from today’s email be “Have we learned nothing?” just remember that attempts to bring back the synthetic CDO in the past couple of months have failed miserably. – Shane Ferro
On to today’s links:
The federal court fight over Detroit’s right to declare bankruptcy has begun – Reuters
The US killed an IMF amicus brief in favor of the Supreme Court taking up Argentina’s pari passu case – Joseph Cotterill