BFM_Newsletter_032012_A Bullish View of US Real Estate

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BFM_Newsletter_032012_A Bullish View of US Real Estate

  1. 1. Executive Summary• Median Home Price is Down 27% and is Low Compared to Household Income or New Home Price.• Housing Affordability is High with Median Mortgage Payment Low Compared to Household Income.• Home Building to Home Buying Ratio is Low even with a Positive Population Growth.• Renting Seems Expensive Compared to Buying.• Home Inventories is Lower. © 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 1
  2. 2. IntroductionThe real estate crisis has been one of the trigger elements of the2008 financial crisis. Prices have already fallen by 50% in some U.S.Cities. Here is a bullish view of the housing market.While home prices may bottom in 2012-2013, short term futurehome-price appreciation is likely to be modest, at best, for theforeseeable future, based on still-high foreclosure rates, unsoldhome inventories, and still-tight credit standard. © 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 2
  3. 3. Median Existing Home Prices Down 27% Sources : National Association of Realtors, FactSet, J.P. Morgan Asset Management, and Census Bureau© 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 3
  4. 4. Housing Busts in U.S. History© 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 4
  5. 5. Home Price Index is Now 15% Below Household Income IndexNotes : « Median U.S. home price » pertains to existing, single-family home ; « rental equivalent of home prices » is defined by apartment rents as measured by theCPI shelter index. To minimize base-year effects, all series in Figure 3b have been rebased to index values in which the average for 1983-1993 equals to 100.Sources : Vanguard, based on data from Federal Reserve, Moody’s Analytics Association of Realtors, U.S. Census Bureau, and U.S. Bureau of Labor Statistics. © 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 5
  6. 6. Case-Shiller Home Price Index Annual Change© 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 6
  7. 7. U.S. Housing Follows a More or Less Regular Cycle Sources : Bureau of the Census, and GMO, As of 6/30/11© 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 7
  8. 8. Median Home Price is 153% of Household IncomeSources: Census, National Association of Realtors, BEA, and J.P. Morgan Asset Management.September 2011 is a J.P. Morgan Asset Management estimate. © 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 8
  9. 9. Existing Home Price is Low Compared to New Home PricesSources : FactSet, NAR, and US Census Bureau, as of November 30, 2011© 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 9
  10. 10. Housing Affordability Index is close to 200 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home. An increase in the HAI, then, shows that this family is more able to afford the median priced home. Sources : FactSet, NAR, and US Census Bureau, as of November 30, 2011© 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 10
  11. 11. Price to Income Ratio is Low at 1.8 Sources : BEA, Census, PPR, and Fiserv© 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 11
  12. 12. Housing Starts as a % of Population Growth is Low at 223 Sources : BEA, Census, and J.P. Morgan Asset Management.© 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 12
  13. 13. Median Mortgage Payment is Low as % of Household IncomeSources : Census, Federal Reserve, BEA, and J.P. Morgan Asset Management. *September 2011 is a J.P. Morgan AssetManagement estimate. © 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 13
  14. 14. Rent is Now 17% More Expensive than Mortgage PaymentSources : Census Bureau, and J.P. Morgan Asset Management. Monthly mortgage payment assumes a 20% down payment atprevailing 30-year fixed-rate mortgage rates; analysis based on median asking rent and median mortgage payment based on askingprice. *3Q11 estimates provided by J.P. Morgan Asser Management.© 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 14
  15. 15. Home Inventories Are Back To 2.8 Millions Sources : National Association of Realtors, FactSet, J.P. Morgan Asset Management, and Census Bureau. Home sales include both new and existing home sales. Existing home sale include single-family, townhouse, condominiums and co-ops© 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 15
  16. 16. Future Housing Construction Gap Gap with potential demand could soak up excess supply in 3-4 years. At that time, we’ll have to potentially double, or even triple, the residential industry. Potential significant impact on employment, consumer, confidence, home prices, tax revenues, the balance sheetsNumbers shown in thousands. Source: CMSG estimates based on Census Bureau Data. of banks and retail spending. © 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 16
  17. 17. From 1890 to 2000, Housing Prices Adjusted for Inflation were almost Flat Source: Irrational Exuberance, 2nd Edition, 2006 by Robert J Shiller© 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 17
  18. 18. New Home Sales and Recessions www.calculatedriskblog.com© 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 18
  19. 19. Chicago DataSources: Moodys © 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 19
  20. 20. About Bourbon Financial Management, LLCBourbon Financial Management was formed to provide you with effective and comprehensive solutions for managing yourglobal wealth. Our disciplined and rigorous approach comes from our collective knowledge in serving large institutional clientsover many years.Our core investment belief is that asset allocation (equities, fixed income, cash, real estate…) is the single most importantdeterminant of success in any investment plan. The dominant amount of risk and return comes not from your choice ofindividual investments but from your asset class mix. Bourbon Financial Management focuses our resources on riskmanagement and asset allocation.PLEASE SHARE OUR NEWSLETTER: Our newsletter readership is not limited to our clients. Please tell those you feel maybe interested that they can subscribe to their own free copy of the newsletter at info@bourbonfm.com. Thank you. BOURBON FINANCIAL MANAGEMENT Excellence ~ Experience ~ Ethics 616 W. Fulton St., Suite 411, Chicago, IL 60661 (+1) 312-909-6539 ~ www.bourbonfm.com Member of the Financial of Planning Association and Academic Affiliate of the National Association Personal Financial Advisors. © 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 20
  21. 21. Disclosures• This material was prepared by BFM, Copyright by Bourbon Financial Management, LLC. All rights reserved. BFM is a trademark of Bourbon Financial Management, LLC. No part of this publication may be copied or distributed, transmitted, transcribed, stored in a retrieval system, transferred in any form or any means-electronic, mechanical, magnetic, manual, or otherwise-or disclose to third parties without the express written permission of Bourbon Financial Management, LLC, 616 W. Fulton #411, Chicago IL 60661. The information contained in this presentation is not written or intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from your own tax or legal counsel. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. BFM assumes no responsibility for statements made in this publication including, but not limited to, typographical errors or omissions, or statements regarding legal, tax, securities, and financial matters. Qualified legal, tax, securities, and financial advisors should always be consulted before acting on any information concerning these fields.• All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The views expressed in this presentation are not intended to be a forecast of future events, a guarantee of future results or investment advice. The information contained herein has been prepared from sources believed to be reliable, but it is not guaranteed by Bourbon Financial Management, LLC as to its accuracy or completeness. Forecasts and predictions are inherently limited and should not be construed as a solicitation or recommendation or be used as the sole basis for any investment decision. All investments are subject to risk including the loss of principal.• The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. We believe the information obtained from third-party sources to be reliable, but neither Bourbon Financial Management, LLC nor its affiliates guarantee its accuracy, timeliness, or completeness. The views, opinions and estimates herein are as of the date of the material and are subject to change without notice at any time in reaction to shifting market conditions. Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance. Examples provided are for illustrative purposes only and not intended to be reflective of results you should expect to attain. © 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 21

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