Category Archives: Real Estate

Premium Homes Dominate Inventory For Sale

Don’t Call It A Comeback: How Rising Home Values May Be Stifling Inventory

https://dwtd9qkskt5ds.cloudfront.net/blog/wp-content/uploads/2017/03/InventoryReport2017Q1_herofinalA.png

By Ralph McLaughin | Chief Economist For Trulia

U.S. home inventory tumbled to a new low in the first quarter of 2017, falling for eight consecutive quarters. Homebuyers have now been stifled by low inventory for the last two years despite prices rising to pre-recession highs in many markets.

https://dwtd9qkskt5ds.cloudfront.net/blog/wp-content/uploads/2017/03/InventoryReport2017Q1_inline1-2.png

In this edition of Trulia’s Inventory and Price Watch, we examine how home value recovery may be limiting supply in markets that have recovered most. We find that homebuyers in markets with the biggest gains are facing the tightest supply.

The Trulia Inventory and Price Watch is an analysis of the supply and affordability of starter homes, trade-up homes, and premium homes currently on the market. Segmentation is important because home seekers need information not just about total inventory, but also about inventory in the price range they are interested in buying. For example, changes in total inventory or median affordability don’t provide first-time buyers useful information about what’s happening with the types of homes they’re likely to buy, which are predominantly starter homes.

Looking at the housing stock nationally and in the 100 largest U.S. metros from Q1 2012 to Q1 2017, we found:

  • Nationally, the number of starter and trade-up homes continues drop, falling 8.7% and 7.9% respectively, during the past year, while inventory of premium homes has fallen by just 1.7%;
  • The persistent and disproportional drop in starter and trade-up home inventory is pushing affordability further out of reach of homebuyers. Starter and trade-up homebuyers need to spend 2.9% and 1.6% more of their income than this time last year, whereas premium homebuyers only need to shell out 0.9% more of their income;
  • A strong recovery may be partly to blame for the large drop in inventory some markets have experienced over the past five years. On average, the more valuable a market’s housing is compared to pre-recession levels, the larger drop in inventory it is has seen.

https://dwtd9qkskt5ds.cloudfront.net/blog/wp-content/uploads/2017/03/InventoryReport2017Q1_inline3.png

2017 Ushers in a Dramatic Shortage of Homes

Nationally, housing inventory dropped to its lowest level on record in 2017 Q1. The number of homes on the market dropped for the eighth consecutive quarter, falling 5.1% over the past year. In addition:

  • The number of starter homes on the market dropped by 8.7%, while the share of starter homes dropped from 26.1% to 25.9%. Starter homebuyers today will need to shell out 2.9% more of their income towards a home purchase than last year;
  • The number of trade-up homes on the market decreased by 7.9%, while the share of trade-up homes dropped from 23.9% to 23%. Trade-up homebuyers today will need to pay 1.6% more of their income for a home than last year;
  • The number of premium homes on the market decreased by 1.7%, while the share of premium homes increased from 50% to 51%. Premium homebuyers today will need to spend 0.6% more of their income for a home than last year.

https://dwtd9qkskt5ds.cloudfront.net/blog/wp-content/uploads/2017/03/InventoryReport2017Q1_v04_inline3.png

https://dwtd9qkskt5ds.cloudfront.net/blog/wp-content/uploads/2017/03/InventoryReport2017Q1_inline4-2.png

How and Where a Strong Housing Market May Be Hurting Inventory

In the first edition of our report, we provided a few reasons why inventory is low: (1) investors bought up much of the foreclosure home inventory during the financial crisis and turned them into rental units, (2) price spread – that is, when prices of homes in different segments of the housing market diverge from each other – makes it difficult for existing homeowners to tradeup to the next the segment, and (3) slow home value recovery was making it difficult for some homeowners to break even on their homes. While there is evidence that investors indeed converted owner-occupied homes into rentals as well as evidence from our first report that increasing price spread is correlated with decreases in inventory, little work has examined how home value recovery affects inventory. This is perhaps due to the tricky conceptual relationship between home values and inventory: too little recovery might make it difficult for homeowners to sell their home but cheap to buy one, while too much recovery might make it easy for them to sell but difficult to buy.

https://dwtd9qkskt5ds.cloudfront.net/blog/wp-content/uploads/2017/03/inventory_bar.png

In fact, we find a negative correlation between how much a housing market has recovered and how much inventory has changed over the past five years. Using the current value of the housing market relative to the peak value as our measure of recovery, we find markets with greater home value recovery have experienced larger decreases in inventory over the past five years. The linear correlation was moderate (-0.36) and statistically significant. We also found that markets with the strongest recovery, on average, have experienced the largest decreases in inventory.

For example, the five-year average change in inventory of housing markets currently valued below their pre-recession peak (< 95% of peak value) isn’t that different from ones that have recovered to 95% – 105% of their peak. (-27.6% vs. -30.1%). However, the average change in inventory in well-recovered markets (> 105%) is 0more drastic at -45.4%.

The disparity also persists when looking at changes in inventory within each segment, although the difference is largest for starter homes. On average, markets with less than 95% recovery or 95% to 105% recovery had a 34.2% and 31.7% decrease in starter inventory, while markets with more than 105% home value recovery had a whopping 58.2% drop. These findings suggest that a moderate home value recovery doesn’t affect inventory much, but a strong recovery does and impacts inventory of starter homes the most.

L.A. to Worsen Housing Shortage with New Rent Controls

https://mises.org/sites/default/files/styles/slideshow/public/apartments.JPG?itok=W2nfy-A2

Los Angeles, home to one of the least affordable housing markets in North America, is now proposing to expand rent control to “fix” its housing problem. 

As with all price control schemes, rent control will serve only to make housing affordable to a small sliver of the population while rendering housing more inaccessible to most. 

Specifically, city activists hope that a new bill in the state legislature, AB1506, will allow local governments, Los Angeles included, to expand the number of units covered by rent control laws while also restricting the extent to which landlords can raise rents. 

Unintended Consequences 

Currently, partial rent control is already in place in Los Angeles and landlords there are limited in how much they can raise rents on current residents. However, according to LA Weeklylandlords are free to raise rents to market levels for a unit once that unit turns over to new residents. 

This creates a situation of perverse incentives that do a disservice to both renters and landlords. Under normal circumstances, landlords want to minimize turnover among renters because it is costly to advertise and fill units, and it’s costly to prepare units for new renters. (Turnover is also costly and inconvenient for renters.) 

By limiting rent growth for ongoing renters, however, this creates an incentive for landlords to break leases with residents — even residents who the landlords may like — just so the landlords can increase rents for new incoming renters in order to cover their costs of building maintenance and improvements. The only upside to this current regime is that at least this partial loophole still allows for some profit to be made, and thus allows for owners to produce and improve housing some of the time

But, if this loophole is closed, as the “affordable housing” activists hope to do, we can look forward to even fewer housing units being built, current units falling into disrepair, and even less availability of housing for residents. 

Why Entrepreneurs Bring Products to Market 

The reason fewer units will be built under a regime of harsher rent control, is because entrepreneurs (i.e., producers) only bring goods and services to market if they can be produced at a cost below the market price. 

Contrary to the myth perpetuated by many anti-capitalists, market prices — in this case, rents are not determined by the cost of producing a good or service. Nor are prices determined by the whims of producers based on how greedy they are or how much profit they’d like to make. 

In fact, producers are at the mercy of the renters who — in the absence of price controls — determine the price level at which entrepreneurs must produce housing before they can expect to make any profit. 

However, when governments dictate that rent levels must be below what would have been market prices — and also below the level at which new units can be produced and maintained — then producers of housing will look elsewhere. 

Henry Hazlitt explains many of the distortions and bizarre incentives that emerge from price control measures: 

The effects of rent control become worse the longer the rent control continues. New housing is not built because there is no incentive to build it. With the increase in building costs (commonly as a result of inflation), the old level of rents will not yield a profit. If, as often happens, the government finally recognizes this and exempts new housing from rent control, there is still not an incentive to as much new building as if older buildings were also free of rent control. Depending on the extent of money depreciation since old rents were legally frozen, rents for new housing might be ten or twenty times as high as rent in equivalent space in the old. (This actually happened in France after World War II, for example.) Under such conditions existing tenants in old buildings are indisposed to move, no matter how much their families grow or their existing accommodations deteriorate.

Thus, 

Rent control … encourages wasteful use of space. It discriminates in favor of those who already occupy houses or apartments in a particular city or region at the expense of those who find themselves on the outside. Permitting rents to rise to the free market level allows all tenants or would-be tenants equal opportunity to bid for space. 

Nor surprisingly, when we look into the current rent-control regime in Los Angeles, we find that newer housing is exempt, just as Hazlitt might have predicted. Unfortunately, housing activists now seek to eliminate even this exemption, and once these expanded rent controls are imposed, those on the outside won’t be able to bid for space in either new or old housing.

Newcomers will be locked out of all rent-controlled units — on which the current residents hold a death grip — and they can’t bid on the units that were never built because rent control made new housing production unprofitable. Thus, as rent control expands, the universe of available units shrinks smaller and smaller. Renters might flee to single-family rental homes where rent increases might still be allowed, or they might have to move to neighboring jurisdictions that might not have rent controls in place. 

In both cases, the effect is to reduce affordability and choice. By pushing new renters toward single-family homes this makes single-family homes relatively more profitable than multi-family dwellings, thus reducing density, and robbing both owners and renters of the benefits of economies of scale that come with higher-density housing. Also, those renters who would prefer the amenities of multi-family communities are prevented from accessing them. Meanwhile, by forcing multi-family production into neighboring jurisdictions, this increases commute times for renters while forcing them into areas they would have preferred not to live in the first place. 

But, then again, for many local governments — and the residents who support them — fewer multi-family units, lower densities, and fewer residents in general, are all to the good. After all, local government routinely prohibit developers from developing more housing through zoning laws, regulation of new construction, parking requirements, and limitations on density. 

And these local ordinances, of course, are the real cause of Los Angeles’s housing crisis. Housing isn’t expensive in Los Angeles because landlords are greedy monsters who try to exploit their residents. Housing is expensive because a large number of renters are competing for a relatively small number of housing units. 

And why are there so few housing units? Because the local governments usually drive up the cost of housing. As this report from UC Berkeley concluded: 

In California, local governments have substantial control over the quantity and type of housing that can be built. Through the local zoning code, cities decide how much housing can theoretically be built, whether it can be built by right or requires significant public review, whether the developer needs to perform a costly environmental review, fees that a developer must pay, parking and retail required on site, and the design of the building, among other regulations. And these factors can be significant – a 2002 study by economists from Harvard and the University of Pennsylvania found strict zoning controls to be the most likely cause of high housing costs in California.

Contrary to what housing activists seem to think, declaring that rents shall be lower will not magically make more housing appear. Put simply, the problem of too little housing — assuming demand remains the same — can be solved with only one strategy: producing more housing

Rent control certainly won’t solve that problem, and if housing advocates need to find a reason why so little housing is being built, they likely will need to look no further than the city council.

By Ryan McMaken | Mises Institute

Can Short Term Rental Income Hurt Your Mortgage Refinance Application?

One of the most significant financial trends to sweep the country is more of a hit with homeowners than refinance mortgage lenders.

Logically, it sure seems as though a loan application which shows extra income through short-term room rentals would be a winner, something that would greatly please mortgage lenders.

The catch is that it’s not a sure thing, and in some cases, room rentals could actually be a negative.

New Trend Creates Uncertainty

Across the country, a number of electronic platforms now allow those with extra space to provide short-term housing.

National services such as Airbnb, Flipkey, HomeAway and VRBO are at the heart of this new business, one which takes an idle asset – that unused mother-in-law suite or extra bedroom – and puts it to use.

The result is that many homeowners are now getting cash for their quarters, money that can help with monthly bills and even mortgage payments.

At first, short-term home rentals seem like a win-win business proposition: the homeowner earns income while the traveler gets space for a few days, space that might be a lot cheaper than standard-issue hotel rooms.

The catch is that although the cash earned from short-term rentals is real, it may not automatically count on a mortgage application.

Home Rentals And Your Refinance Mortgage

For a very long time, there has been a business which offers short-term rentals — the hotel industry. Like most industries, it has not been shy about seeking legal protections for its products and services.

Check the local rules for virtually all jurisdictions, and you will find laws on the books which prohibit unlicensed short-term rentals or leases of fewer than 30 days.

These laws are largely unenforced, but that is changing. According to the New York Post, on October 21, 2016, New York Governor Cuomo signed a bill that would impose fines of up to $7,500 against hosts who posted short-term rentals. A California couple who had already paid $2,081 for their room found themselves with nowhere to stay when another resident reported their host to the authorities.

Rental Income: Is It Reported?

For lenders, the new surge in short-term rentals raises a number of issues. The money is nice, and congratulations on that, but whether such funds can be counted in a refinance home loan application is uncertain. Here’s why:

First, the lender will want to see that the rental income has been reported on tax returns. If income is not reported, it doesn’t usually count.

Note that if you report short-term rental income, it may not be taxable, depending on how many nights the property was rented. See a tax professional for details.

Is It Legal?

Second, if the income is reported, was it legally obtained? Here we get back to those sticky local rules that ban short-term rentals.

Lenders like to see income that’s ongoing, because mortgages tend to be lengthy obligations lasting 15 or 30 years.

If cash is coming from unlicensed room rentals, there is the possibility that the money might be cut off at any moment by an irate neighbor who reports the matter to local authorities.

Is It Your Primary Residence?

Third, is the property a residence? Mortgage lenders generally are in the business of financing homes with one-to-four units, and the best refinance rates go to those being used as primary residences.

New York state found that six percent of the units it studied captured almost 40 percent of the private short-term rental income.

In other words, some properties did a lot of short term rentals, a volume which will make lenders wonder whether the property is a comfy residence or an unlicensed hotel.

It’s not just lenders who will have such questions. The property will have to be appraised and that’s where problems are likely to arise.

Home, Sweet Boarding House?

Francois (Frank) K. Gregoire, an appraiser based in St. Petersburg and a nationally-recognized valuation authority, notes that “a room rental situation, depending on the number of rooms, may shift the use of the property from single or multifamily to a business use, such as a hotel or rooming house.

“If there are more than four units, the property is outside the one to four units certified residential appraisers are permitted to appraise, and outside the one to four unit limitation for loan purchase by Fannie and Freddie.”

The Future Of Short-Term Rentals

While the current situation is muddled and puzzled, there’s a very great likelihood that short-term home rentals will be increasingly legitimatized.

In the same way that Uber has disrupted the traditional cab industry, the odds are that the same thing will happen with short-term rentals. The reason is that the private rental rules now on the books were passed when no one cared and are largely unenforced.

Now, the landscape has changed. A very large number of homeowners want to be in the short-term rental business, or are at least disinclined to report their neighbors.

The police surely don’t want to break into homes in search of paying guests, and state and local lawmakers really want homeowner votes.

Be Careful Out There

For the moment, homeowners with an interest in earning a few extra dollars from short-term home rentals should get advice and counsel from a local real estate attorney before signing up guests.

In addition, speak with your insurance broker to assure that you have adequate coverage. Some policies allow short-term rentals, some do not, and there are differing definitions regarding what is or is not an allowable short-term rental.

By Peter Miller | The Mortgage Reports

Realtors Busted With National Lender In Mortgage Kickback Scheme

CFPB orders Prospect Mortgage to pay $3.5 million for improper mortgage referrals

Regulator calls alleged activity a “kickback” scheme

The Consumer Financial Protection Bureau today ordered Prospect Mortgage, a major mortgage lender, to pay a $3.5 million fine for improper mortgage referrals, in what the regulator calls an alleged “kickback” scheme.

The lender paid illegal kickbacks for mortgage business referrals. But Prospect Mortgage isn’t the only one being fined. The CFPB also dealt out penalties to two real estate brokers and a mortgage servicer who took kickbacks from Prospect. These three will pay a combined total of $495,000 in consumer relief, repayment of ill-gotten gains and penalties.

“Today’s action sends a clear message that it is illegal to make or accept payments for mortgage referrals,” CFPB Director Richard Cordray said. “We will hold both sides of these improper arrangements accountable for breaking the law, which skews the real estate market to the disadvantage of consumers and honest businesses.”

Here are three reasons the CFPB said it is fining Prospect Mortgage:

Paid for referrals through agreements: 

Prospect maintained various agreements with over 100 real estate brokers, including ReMax Gold Coast and Keller Williams Mid-Willamette, which served primarily as vehicles to deliver payments for referrals of mortgage business. Prospect tracked the number of referrals made by each broker and adjusted the amounts paid accordingly. Prospect also had other, more informal, co-marketing arrangements that operated as vehicles to make payments for referrals. 

Paid brokers to require consumers – even those who had already prequalified with another lender – to pre-qualify with Prospect: 

One particular method Prospect used to obtain referrals under their lead agreements was to have brokers engage in a practice of “writing in” Prospect into their real estate listings. “Writing in” meant that brokers and their agents required anyone seeking to purchase a listed property to obtain pre-qualification with Prospect, even consumers who had pre-qualified for a mortgage with another lender.

Split fees with a mortgage servicer to obtain consumer referrals: 

Prospect and Planet Home Lending had an agreement under which Planet worked to identify and persuade eligible consumers to refinance with Prospect for their Home Affordable Refinance Program mortgages. Prospect compensated Planet for the referrals by splitting the proceeds of the sale of such loans evenly with Planet. Prospect also sent the resulting mortgage servicing rights back to Planet.

Prospect is prohibited from future violations of the Real Estate Settlement Procedures Act, will not pay for referrals and will not enter into any agreements with settlement service providers to endorse the use of their services, according to the CFPB.

Three of the companies that accepted the illegal money, ReMax Gold Coast, Keller Williams Mid-Willamette and Planet Home Lending, were also fined by the CFPB. ReMax Gold Coast will pay $50,000 in civil money penalties, and Keller Williams Mid-Willamette will pay $145,000 in disgorgement and $35,000 in penalties. Under the consent order filed against Planet Home Lending, the company will directly pay harmed consumers a total of $265,000 in redress.

HousingWire reached out to Prospect Mortgage for comment, but has not yet received a reply. This article will be updated when and if we receive one.

Article by Kelsey Ramirez | Housingwire

Commercial Property Market Faces Uncertainty Ahead

https://s15-us2.ixquick.com/cgi-bin/serveimage?url=http%3A%2F%2Fwww.heritage365.com%2Fwp-content%2Fuploads%2F2015%2F01%2Fcommercial-real-estate.jpg&sp=d28b14b45d30e0c00474f47876bc5673

2015 was a spectacular year for the commercial real estate market, and 2016 was a solid year. 2017, however, is likely to be a bit of wildcard, analysts say.  

Despite a recent rise in interest rates and the uncertainty surrounding the new regime in Washington, market watchers are forecasting a good year for the market, with stable prices and lots of properties changing hands.

Still, it also could go the other way.

“If interest rates go up much more than they have, transaction volume might come down some more,” said Jim Costello, senior vice president with Real Capital Analytics (RCA). “If sellers aren’t forced to sell, they could just sit on the property for awhile until things look more favorable to them.”  

Deal volume in 2016 dropped significantly compared to 2015 for properties valued over $2.5 million. Through November, the 2016 year-to-date transaction volume stood at $424.2 billion, which was down 10 percent compared to same 11-month period in 2015, RCA reported.

RCA’s numbers for the full-year in 2016 were not yet available, but it would take a huge month in December for 2016’s deal volume to match the 2015 levels. Transaction volume was trending down at the end of the year. In November, asset sales totaled $33.9 billion, which was down 6 percent compared to November 2015, RCA reported.  

Sales in 2016 were still strong compared to previous years since the recovery. Year-to-date through November, the overall transaction volume in 2016 was 12 percent and 35 percent above the 2014 and 2015 levels, respectively.

2016 saw fewer large mega-deals involving multiple properties compared with 2015, but single-asset sales volume remained solid. “If anything, 2015 was almost an aberration,” Costello said. He was optimistic that sales volumes this year would run ahead of the 2016 pace. He noted that, outside a few pockets of the country, the commercial real estate market hasn’t generally seen a building boom that could flood the market with new space and weaken demand for pre-existing buildings.

The new year brings uncertainty, however. Costello said the higher interest rates could eventually lower property values, causing a standoff between buyers and sellers in 2017. Higher interest rates tend to lower commercial asset prices by driving up capitalization rates. Cap rates in all classes have been at historic lows, which have propelled the market forward in recent years.

Costello also said the policies of President-elect Donald Trump also are not fully known, but will ultimately have some impact on the market.

On the campaign trail, Trump proposed a huge infrastructure spending plan, which could lead to a significant rise in interest rates. However, Trump’s pro-growth tax policies also could spur more activity in the market, Costello said.

“The initial reaction of the market was that, well, President-elect Trump was talking about all these potentially inflationary policies, so we better be careful,” Costello said. “Will that come through? It remains to be seen. I am not sure that [House Speaker] Paul Ryan is going to be happy spending lots of money in a [New Deal-era] WPA-style jobs program for infrastructure. That was the thing that was thrown out there that was making the market spooked.”

Ken Riggs, president of Situs RERC, said that the market ended 2016 in a stable position, with prices perfectly matching the values. He said the performance of each property is highly dependent on its asset class and location, and varies widely. He doesn’t expect an overall market correction next year, although investors are growing more cautious with each passing year. 

“There will be continued high interest for commercial real estate,” Riggs told Scotsman Guide News. “Investors will just have to be very selective, not only about the property types, but also where they invest within the capital stack.”

By Victor Whitman | Scotsman Guide

 

2016 Ends With A Whimper: Stocks Slide On Last Minute Pension Fund Selling

Nobody has any idea what will happen, or frankly, what is happening when dealing with artificial, centrally-planned markets …

https://s16-us2.ixquick.com/cgi-bin/serveimage?url=http%3A%2F%2Fwww.zerohedge.com%2Fsites%2Fdefault%2Ffiles%2Fimages%2Fuser3303%2Fimageroot%2F20151115_stifel1.jpg&sp=86571a472b6a5e0f77ae4916824527e6

When we first warned 8 days ago that in the last week of trading a “Red Flag For Markets Has Emerged: Pension Funds To Sell “Near Record Amount Of Stocks In The Next Few Days”, and may have to “rebalance”, i.e. sell as much as $58 billion of equity to debt ahead of year end, many scoffed wondering who would be stupid enough to leave such a material capital reallocation for the last possible moment in a market that is already dangerously thin as is, and in which such a size order would be sure to move markets lower, and not just one day.

Today we got the answer, and yes – pension funds indeed left the reallocation until the last possible moment, because three days after the biggest drop in the S&P in over two months, the equity selling persisted as the reallocation trade continued, leading to the S&P closing off the year with a whimper, not a bang, as Treasurys rose, reaching session highs minutes before the 1pm ET futures close when month-end index rebalancing took effect.

10Y yields were lower by 2bp-3bp after the 2pm cash market close, with the 10Y below closing levels since Dec. 8. Confirming it was indeed a substantial rebalancing trade, volumes surged into the futures close, which included a 5Y block trade with ~$435k/DV01 according to Bloomberg while ~80k 10Y contracts traded over a 3- minute period.

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY6%20-%2010Y%20Intraday_0.JPG

The long-end led the late rally, briefly flattening 5s30s back to little changed at 112.5bps. Month-end flows started to pick up around noon amid reports of domestic real money demand; +0.07yr duration extension was estimated for Bloomberg Barclays Treasury Index. Earlier, TSYs were underpinned by declines for U.S. equities that accelerated after Dec. Chicago PMI fell more than expected.

Looking further back, the Treasury picture is one of “sell in December 2015 and go away” because as shown in the chart below, the 10Y closed 2016 just shy of where it was one year ago while the 30Y is a “whopping” 4 bps wider on the year, and considering the recent drop in yields as doubts about Trumpflation start to swirl, we would not be surprised to see a sharp drop in yields in the first weeks of 2017. Already in Europe, German Bunds are back to where they were on the day Trump was elected.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY6%20-%2010Y%202016_0.jpg

So with a last minute scramble for safety in Treasures, it was only logical that stocks would slide, closing the year off on a weak note. Sure enough, the S&P500 pared its fourth annual gain in the last five years, as it slipped to a three-week low in light holiday trading, catalyzed by the above mentioned pension fund selling.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY8%20-%20SPX_0.jpg

The day started off, appropriately enough, with a Dollar flash crash, which capped any potential gains in the USD early on, and while a spike in the euro trimmed the dollar’s fourth straight yearly advance, the greenback still closed just shy of 13 year highs, up just shy of 3% for the year. 

Meanwhile, the year’s best surprising performing asset, crude, trimmed its gain in 2016 to 52%.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY7%20-%20WTI%20YTD_0.jpg

The S&P 500 Index cut its advance this year to 9.7 percent as it headed for the first three-days slide since the election. The Dow Jones Industrial Average was poised to finish the year 200 points below 20,000 after climbing within 30 points earlier in the week. It appears the relentless cheer leading by CNBC’s Bob Pisani finally jinxed the Dow’s chances at surpassing 20,000 in 2016. Trading volume was at least 34 percent below the 30-day average at this time of day. A rapid surge in the euro disturbed the calm during the Asian morning, as a rush of computer-generated orders caught traders off guard. That sent a measure of the dollar lower for a second day, trimming its rally this year below 3 percent.

Actually, did we say crude was the best performing asset of the year? We meant Bitcoin, the same digital currency which we said in September 2015 (when it was trading at $250) is set to soar as Chinese residents start using it more actively to circumvent capital controls, soared, and in 2016 exploded higher by over 120%.

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/bitcoin%20ytd%202_0.jpg

For those nostalgic about 2016, the chart below breaks down the performance of major US indices in 2016 – what began as the worst start to a year on record, ended up as a solid year performance wise, with the S&P closing up just shy of 10%, with more than half of the gains coming courtesy of an event which everyone was convinced would lead to a market crash and/or recession, namely Trump’s election, showing once again that when dealing with artificial, centrally-planned market nobody has any idea what will happen, or frankly, what is happening.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY1_0.jpg

Looking at the breakdown between the main asset classes, while 30Y TSYs are closing the year effectively unchanged, the biggest equity winners were financials which after hugging the flat line, soared after the Trump election on hopes of deregulation, reduced taxes and a Trump cabinet comprised of former Wall Streeters, all of which would boost financial stocks, such as Goldman Sachs, which single handedly contributed nearly a quarter of the Dow Jones “Industrial” Average’s upside since the election.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY2_0.jpg

The FX world was anything but boring this year: while the dollar soared on expectations of reflation and recovery, the biggest moves relative to the USD belonged to sterling, with cable plunging after Brexit and never really recovering, while the Yen unexpectedly soared for most of the year, only to cut most of its gains late in the year, when the Trump election proved to be more powerful for Yen devaluation that the BOJ’s QE and NIRP.

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY3_0.jpg

The largely unspoken story of the year is that while stocks, if only in the US – both Europe and Japan closed down on the year – jumped on the back of the Trump rally, bonds tumbled. The problem is that with many investors and retirees’ funds have been tucked away firmly in the rate-sensitive space, read bonds, so it is debatable if equity gains offset losses suffered by global bondholders.

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY4_0.jpg

And speaking of the divergence between US equities and, well, everything else, no other chart shows the Trump “hope” trade of 2016 better than this one: spot thee odd “market” out.

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/12/30/20161230_EOY5_0.jpg

So as we close out 2016 and head into 2017, all we can add is that the Trump “hope” better convert into something tangible fast, or there will be a lot of very disappointed equity investors next year.

And with that brief walk down the 2016 memory lane, we wish all readers fewer centrally-planned, artificial “markets” and more true price discovery and, of course, profits.  See you all on the other side.

By Tyler Durden | ZeroHedge

Good as it Gets? Peaking Lodging Sector Facing Mixed Outlook from Rising Supply, Growing Influence of Airbnb

https://s14-eu5.ixquick.com/cgi-bin/serveimage?url=http%3A%2F%2Fwww.besthotelsaroundtheworld.com%2Fwp-content%2Fuploads%2F2011%2F03%2Fblanket-bay-2.jpg&sp=1503b8756737f1c05395d78d2adb9f98

In its latest outlook for the U.S. lodging sector, CBRE Hotels’ Americas Research noted that the sector will continue to accrue benefits from achieving the industry’s all-time record occupancy record in 2016 of 65.4%.

However, a range of expected factors, from new hotel supply entering the market to the growing influence of Airbrb, is expected to impact hotel returns in 2017. CBRE forecasts the average daily rate (ADR) will increase 3.3% next year, a strong positive indicator but a lower ADR growth rate than in 2016, and a continuation of a trend since 2014.

According to CBRE, ADR movement will vary by location and chain-scale, with Northern California markets such as Sacramento and Oakland, along with Washington, D.C. and Tampa projected to lead the nation, with ADR gains of more than 6% during 2017.

“Conventional wisdom says that at such high occupancy levels, hoteliers should have the leverage to implement strong price increases,” notes R. Mark Woodworth, senior managing director of CBRE Hotels’ Americas Research. “However, like for much of 2016, you need to throw conventional wisdom out the window.”

In fact, CBRE sees slight declines in occupancy combined with minimal real gains in ADR as the pattern through 2020.

“Lodging is a cyclical business and we continue to see U.S. hotels sit on top of the peak of the cycle after recovering from the Great Recession,” Woodworth said, adding that the positive outlook for lodging demand and resulting high levels of occupancy will continue to keep the sector on a steady but level path.

“While flat performance sounds disappointing, the strong underpinnings supporting continued growth in travel will prevent an outright fall from the peak,” Woodworth added.

For lodging REITs, the current cycle appears to be similar to the 1990s, during which a prolonged economic expansion sustained growth in revenue per available room (RevPAR) or nearly a decade, said Brian H. Dobson, REIT analyst for Nomura.

While lodging is entering the latter stages of its life cycle when RevPAR growth usually plateaus, supply headwinds in urban markets is expected to reduce RevPAR growth by an additional 100 basis points, resulting in 2% growth through 2018, Dobson said.

Chiming in with its hotel outlook, PricewaterhouseCoopers (PwC) said the lodging cycle is expected to moderate after seven years of growth. PwC analysts predicted supply growth will increase at the long-term historical average of 1.9%, but they forecast a decline in demand growth will lead to the first occupancy decline that the U.S. lodging industry has seen in eight years.

“Uncertainty, combined with plateauing growth in corporate profits, is expected to continue to weigh on corporate transient demand,” PwC said in its assessment.

“Additional demand-side concerns, including the strong U.S. dollar, Brexit, and economic weakness in the Eurozone, Zika, and depressed energy sector activity, are all expected to contribute to the continued weakness in lodging sector demand growth.”

By Randyl Drimmer | CoStar News