Tag Archives: Real estate

Apartments Are Banned from 76% of San Francisco

I came across in incredible stat today. Apartments are banned in 76% of San Francisco. It’s no wonder that it’s the most expensive city in the United States.

In fact, given increasingly restrictive zoning, 54% of the homes in San Francisco could not be built today! The picture in New York City is similar, where 40% of Manhattan homes couldn’t be built under current zoning codes.

I find the anti-development discourse often focuses on “greedy developers” when a more appropriate person to focus on might be “working class mom who doesn’t want to live 90 minutes from work.” How we frame the problem may be the key to winning the argument. The “neighborhood character” trope is another NIMBY standby, but against a struggling single mom who spends four hours a day commuting on a bus to her job as a nanny and just wants an affordable place near her job, i think their argument loses its punch.

Housing in expensive cities like SF and NYC could get more affordable in a different, more painful way. Everyone I know of who lives in San Francisco is decrying staggering amounts of crime and school closures that have gone on over a year. The tech industry has moved to Zoom and found real efficiencies there. I live in the NYC area and can attest that crime has increased substantially.

Perhaps the way San Francisco and similar cities get cheaper isn’t by building, but by self-destruction.

For more on zoning and politics, check out these posts:

If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

Check out the Stuff I Use page for some great deals on products and services I use to improve my health and productivity. They just might help you too! 

Photo: “Typical San Francisco house” by 4nitsirk is licensed under CC BY-SA 2.0

Rocket Companies Is One of the Most Active in the Options Market

Shares in Rocket Companies jumped over 70% today, and that optimism is also reflected in the options market:

RKT stock was one of the most active stocks in the options market yesterday with total volume of over 365,000 contracts. Call option volume outpaced puts by a ratio of 6-to-1. Overall volume was nearly three times higher than normal.

More here. This is particularly striking given that Rocket Companies, while a substantial company, is tiny compared to giants like Apple, Amazon, etc.

For more on the Wallstreetbets phenomenon, check out these posts:

If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

Check out the Stuff I Use page for some great deals on products and services I use to improve my health and productivity. They just might help you too! 

Photo: “Dan Gilbert (left) and me” by Moondog Mascot is licensed under CC BY-NC-ND 2.0

Big Profits And Lots of Short Sellers Could Make Rocket Companies a Winner

Rocket Companies, a mortgage originator, has returned solid profits in 2020’s hot real estate market:

Boosted by the boom in mortgage refinancing activity, the company had $15.7 billion in total revenue, or more than triple its $5.1 billion revenue in 2019.

Its net income, or profit, skyrocketed to $9.4 billion from just under $1 billion the year before. And the company increased its closely watched gain on sale margin by 127 basis points year-over-year to 4.46%.

It’s also the number 2 most popular stock on Reddit’s Wallstreetbets.

And yet, short sellers are betting against the company: 37% of shares are sold short (measured as a percentage of the float). This is comparable to money losing companies like Tanger Factory Outlet Centers.

It’s true that Rocket does face risks from increasing interest rates, but big profits along with a not-outrageous valuation for a high growth company mitigate that. Add in the possibility of a short squeeze and things get interesting.

I prefer a more diversified portfolio, but compared to other Reddit darlings like GameStop, Palantir and Sundial Growers, Rocket looks a lot more attractive.

For more on the Wallstreetbets phenomenon, check out these posts:

If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

Check out the Stuff I Use page for some great deals on products and services I use to improve my health and productivity. They just might help you too! 

Photo: “ATREX – Sounding Rockets” by NASA Goddard Photo and Video is licensed under CC BY 2.0

This One Trend is Driving Every Financial Market

Regardless of which market we look at, we see a similar trend: skyrocketing prices since the beginning of the pandemic. You can see this in the S&P 500, a broad measure of stocks:

In commodities:

In the increase in real estate prices and the corresponding decrease in capitalization rates (this chart is from Dallas…see similar trends in other cities in the research papers linked in this post):

And even in Treasury bonds (recall that the yield moves in the opposite direction from the price, so a lower yield means a higher price):

Why are all these markets looking the same? The likeliest cause is a huge jump in the money supply. The Federal Reserve has aggressively printed money since the beginning of the pandemic, looking to counter the seismic economic shock. I think this is probably appropriate. In any case, the effect is unmistakable, however you measure money supply.

Here’s how the “monetary base,” or “the sum of currency in circulation and reserve balances (deposits held by banks and other depository institutions in their accounts at the Federal Reserve),” has expanded:

If you look at another definition of the money supply, M1 (“the sum of currency held by the public and transaction deposits at depository institutions”), it looks like this:

And if you broaden your definition of money supply to M2 (“M1 plus savings deposits, small-denomination time deposits (those issued in amounts of less than $100,000), and retail money market mutual fund shares”), you see the same familiar pattern:

Whichever way you slice it, there’s a lot more money out there than there used to be. That money can be used to bid up stocks, bonds, real estate, commodities, bitcoin, Gamestop, or whatever you like.

There is some debate in the literature about whether you can draw a correlation between the money supply and increasing stock prices. This study sounds a cautionary note:

future profits may not change, if interest rates decline at the same time that demand for firms’ products, and thus their sales, decline.

This could be relevant for companies that can’t deliver their products in a contactless manner. But companies that can have been thriving.

In all, it appears that the massive increase in the money supply is driving financial markets of every stripe in one direction: up. Until the Fed changes policy, I suspect the bias is likely to be toward buoyant markets, especially with vaccines coming on line and the pandemic’s end in sight.

Have a great weekend, everyone!

If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

Photo: “Governor Jerome Powell speaks at Brookings panel, ‘Are there structural issues in U.S. bond markets?'” by BrookingsInst is licensed under CC BY-NC-ND 2.0

What Does the Pandemic Mean for Real Estate Investments?

A health and economic crisis is scaring nearly everyone right now, including investors. Stocks recovered in record time, but what about investments in real estate? Are they doomed, or is the bad news perhaps a bit overblown?

I invest in real estate through Fundrise, which allows me to spread my money across many projects nationwide. I prefer this to the concentration risk I would face in, for example, owning an apartment building in New York City, where a recent rent law change has substantially reduced the value of buildings.

But regardless of how diversified you are, the pandemic is impacting all aspects of life…and business. So I set out today to gain more understanding of how these changes would affect my real estate investments.

The national picture for apartments, which is most of what Fundrise owns, is surprisingly good. Vacancy rates in major markets including Dallas, Los Angeles and Washington DC, all areas where Fundrise has many buildings, are not all that elevated. This squares with my returns in Fundrise, which were over 7% in 2020 despite just about the worst market conditions imaginable.

Indeed, despite the strong and sustained lockdown measures in LA, its vacancy rate is comparable to that of Dallas, an area that locked down a lot less. Dallas, LA and DC all have a vacancy rate around 5%. Only LA is materially above its Q1 2019 vacancy rate, and keep in mind that LA has had a serious housing crisis for many years.

Of these three markets, LA definitely concerns me the most, with higher unemployment. But prices have held up so far.

So, what’s the upshot? National unemployment is up but still not extremely high, and the higher end apartments Fundrise tends to own are less likely to be occupied by those in leisure/hospitality, who may struggle to pay their rent right now. Add that to the fact that more vaccines are being deployed daily, bringing the beginning of the end of this health crisis.

So, I see the outlook for residential real estate investments as fairly bright, all things considered. To sell now in the face of slight weakness and a coming end to the pandemic simply wouldn’t make sense.

I intend to sit tight.

Note: If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account. I will also get a fee waiver for 90-365 days, depending on what type of account you open.

Photo: “Boarded up & masked – 10th Avenue, New York City” by Andreas Komodromos is licensed under CC BY-NC 2.0

Is Zoning Keeping Poor People Poor?

I recently subscribed to a newsletter from the journalist Matthew Yglesias that has turned out be outstanding. A message I received this morning really struck me. Yglesias argues that the best thing we can do for the poor, given that housing is their biggest expense, is to build housing like crazy:

This is diametrically opposed to the narrative we so often hear, that new development replaces the urban poor with, well, people like me. Yglesias’ argument makes sense in terms of basic supply and demand. New York is creating 3.9 jobs for each new housing unit. In San Francisco and Silicon Valley, the numbers are far worse, at over 6 jobs per new housing unit! (And sure enough, SF/Silicon Valley is more expensive than NY.) Unless the average household size is about 4 in the case of NYC or 6 in SF/Silicon Valley, this simply won’t work. There will be more workers who need apartments than there are apartments.

What happens then? You guessed it: your rent goes up. However, I was greatly encouraged by this tidbit:

Now, you’re on my territory! I’ve lived in Hudson County, NJ for about 6.5 years and love it here. And I did notice that we seem to build a lot more than New York does. But you know what they say: the plural of anecdote is not data.

The data is in! And it’s striking, especially since Brooklyn’s population is around 2.6 million and ours is under 700,000! Dividing Brooklyn’s roughly 2,559,903 residents by 9696 new permitted units gives us 264 residents per new apartment allowed to be built. In Hudson County, that ratio is approximately 672,391 residents divided by 8,238 units, or 82 residents/new unit.

We are building housing more than three times as fast as Brooklyn, our nearest competition!

So, is all of Hudson County a noisy construction site surrounded by snarled traffic? Hardly! There are countless parks, a beautiful waterfront walkway, and lively, pedestrian-friendly streets. It’s actually not so different from Brooklyn, except it’s cheaper and arguably safer, especially these days.

Yglesias’ argument also makes sense given an inside view into NYC development that I happen to have: my friend Tim* is a commercial real estate broker in New York City. He often works with owners of lower productivity industrial real estate in poorer parts of the city that were recently upzoned to allow apartments. A typical client might be the owner of a small factory that is not very profitable, who can do better selling his land to a developer who will build apartments. The factory can move somewhere cheaper nearby (hello, New Jersey!) and people can have places to live.

My one bone to pick with Yglesias’ otherwise excellent article is:

I think a lot of sensible people have different opinions on that one!

Check out Yglesias’s website here. Tons of great reporting of the sort we don’t see enough of!

If you enjoyed this post, please share it on Twitter, Facebook and LinkedIn, or e-mail it to a friend, using the buttons below! This helps people find the blog. 🙂

*Not his real name

Photo: “MichaelPremo_MsWard-4364” by michaelpremo is licensed under CC BY-ND 2.0