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In the Front Door and Out the Back
Lately I have been updating the U.S. Recovery which looks like it is quickly turning into an Un-Recovery.
The top of the chart mashup shows the negative correlation building between the benchmark 10 year U.S. Treasury Yield ($TNX) and the iShares ETF (IYR) which tracks the Dow Jones U.S. Real Estate Index.
U.S. Real Estate cash proxy buyers (IYR) are selling into what looks like a top set last week while 10 Year Yields ($TNX) take another step up from the low set back in July 2011.
The lower chart above via ZeroHedge and the Wall Street Journal shows that short term flipping of real estate held for 6 months or less in California is at the highest levels comparable with 2004-05 levels. Get in, get out, don't overstay because there is negative yield if the property is held.
As I demonstrated in my recent Vancouver Condo Investor Case Study, a buy and hold investor needs a minimum positive cash flow yield in excess of a 10 year bond otherwise what is the reward for taking on the risk?
In the U.S. markets where flipping is the hot game, net operating income is not a calculus. The institutional money and cash buyers who can cherry pick ahead of the crowd are looking for capital gains not cash flow. Again from Zero Hedge
According to the CEO Bruce Rose of Carrington, one of the first investors to use deep institutional pockets (in this case a $450 million investment from OakTree) and BTFHousingD. "We just don’t see the returns there that are adequate to incentivize us to continue to invest" Rose's assessment of the market? "There’s a lot of -- bluntly -- stupid money that jumped into the trade without any infrastructure, without any real capabilities and a kind of build-it-as-you-go mentality that we think is somewhat irresponsible."
"6 percent to 8 percent a year, before costs such as insurance, taxes and vacancies" Dear reader, that is not an undertaking for investment yield, that is a speculation that a capital gain can be made in the short term, and that is the basis behind the so called "Housing Recovery". Get in first, get out first.
One more note should be made and again from ZeroHedge, and the L.A. Times is that the institutional owners of foreclosed properties have held them back from the market keeping the supply low and the retail bidding high.
"...and guess what states the greatest number of 'halts' are in from these banks - California, Nevada, Arizona - exactly where the surges in price have occurred."
History, Charts & Curated Readings
"History, real solemn history, I cannot be interested in.... I read it a little as a duty; but it tells me nothing that does not either vex or weary me. The quarrels of popes and kings, with wars and pestilences in every page; the men all so good for nothing, and hardly any women at all - it is very tiresome." Jane Austen spoken by Catherine Morland in 'Northanger Abbey'
"Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement; and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it." George Santayana Vol. I, Reason in Common Sense