Saw an interesting chart from Bloomberg today –
AMERICANS HAVE TURNED COMPLETELY UPSIDE DOWN ON THEIR VIEW ON WHETHER IT IS A GOOD TIME TO BUY HOME OVER THE PAST 12MONTHS
Per January Fannie Mae survey, 69% of respondents said it is a good time to SELL while 25% of respondents indicated that it is good time to BUY.
Overall it looks like a reflection of 1) rapidly rising home prices and 2) rising interest rate environment.
This means that PEOPLE ARE RESPONDING TO CHANGES IN PRICES AND ABILITY TO FUND TRANSACTIONS.
HOWEVER, what they are not responding to is something that is not as apparent – underlying REPLACEMENT VALUE THAT IS BEING BUOYED BY INFLATION.
For example, lumber price is essentially 2x of 2022 level – lumber is proxy for materials that are used in housing construction.
Replacement value going up means that it just costs more to build a new home than before – this in turn, raises the value of existing homes. The materials that constitute those homes are just more valuable and the home becomes more valuable as a result.
Essentially, if you were to re-assess the value of your home, you are in a situation where you could write up the book value of the homes – because raw material costs have gone up.
With inflation, EPS / earnings on the home likely goes up with low headwind from inflationary costs because it is a more of an asset-heavy business
Below is Blackstone Mortgage Trust slide – not really apples to apples, but helps to understand visually what could be happening to value of homes and their earnings power.
I remain bullish in American real estate.
*not investment advice
