Last week, President of Zillow was on CNBC. As you all know, Zillow is one of the major online real estate brokerage firms. Zillow is actually no just an online real estate broker firm, but it is now a major buyer in the residential mortgage market.
Residential real estate market is seeing some deceleration in the increase of housing prices – turning to red hot market from white hot market.
A few things she said in the interview really caught my attention and made me HIGHLY BULLISH on US housing market based on what I have learned in economics and years as an investor. These are not word-for-word, but are largely representative of her takeaways.
“Deceleration of increase in housing prices means we are now in the SUSTAINABLE GROWTH PHASE in the housing market“
Sustainable growth in housing price is critical for wealth creation through housing. Don’t forget the power of financial leverage in housing ownership. Even 1%p increase makes significant difference. If you financed your purchase with 80% debt, 1%p increase in housing price translates to 5%p increase in equity value. 2%p? that translates to making 10% on equity!
“Vast majority of corporations still have not set their work-from-home policy – there is a lot of demand building up on the side that will pick up once there will be clarity”
This would represent a lot of married couples with kids – they have yet to make decisions as they need a lot more clarity because moving has implications for their kids. I would think many of them stayed in because they can’t just uproot their kids’ lives.
“Millennials are also entering the age where they are looking to purchase housing – providing secular growth in demand for homes”
Millennials obviously are the next-gen of home buyers as they start having families.
Demand for housing will continue to increase. At the same time, inflationary pressure on raw building materials and wage will drive up the building costs – which should increase replacement value of existing homes – raising the VALUATION SUPPORT for housing.
However, it is not just about demand supply – but underlying changes in ownership of RESIDENTIAL PROPERTIES in America also provides for more sustainable growth.
In America, the residential asset owernship is becoming actively shifted from individual families to large capitals – including online brokerage firms like Zillow and Redfin as well as private equity funds.
Zillow’s home buying program
Redfin’s home buying program
Zillow and Redfin, backed with strong capital base, are using speed and certainty to drive more buyer volume and are rapidly expanding market share.
At the same time, there is private equity fund joining this party – Blackstone.
Blackstone invested $6bn for a company that owns 17,000 rental homes. You have to pay attention to investors like Blackstone not because they are smart (private equity people are generally smart, but not geniuses – they tend to be very hard working people), but because they have connections – to get information as well as can lobby the right people.
WE MUST REMEMBER THAN MORE CONSOLIDATED OWNERSHIP OF ANY ASSET- OLIGARACHY- TENDS TO LEAD TO STABLE PRICE APPRECIATION.
I had been bearish on real estate market in America – however, based on Zillow interview as well as fundamental changes, I am getting more bullish.
“DON’T HATE THE PLAYER, HATE THE GAME”
What are your thoughts here? Are you bullish on housing?
