Is It Time To Bet Against Real Estate? (IYR)

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From Tony Sagami: More Americans are renting their homes than at any point since 1965. That’s per a new study by the Pew Research Center.

The total number of households in the U.S. grew by 7.6 million between 2006 and 2016.

But over the same decade, the number of American households living in a home they own remained essentially unchanged.

Meanwhile, the percentage of Americans renting their homes increased dramatically. It jumped from 31.2% in 2006 to 36.6% in 2016.

And that figure continues to rise …

The latest percentage of renters now stands higher than the 36.2% of 1986 and 1988. It’s now within a whisper of the all-time high of 37.0%, set in 1965.

I believe the root of the rising rental rates is economic hardship.

Only a small percentage of people who rent do so voluntarily. Most get pushed into renting because of financial circumstances.

When Pew surveyors asked renters why they rent, a whopping 65% cited financial circumstances. Only 32% said they rented as a matter of choice.

The three largest groups of traditional renters — young adults, blacks and Hispanics — are still the most likely to rent.

But the rental rates also increased for older adults, whites and college- educated households.

Worse yet, there is a large contingent of Millennials who aren’t even renting.

They choose to live in Mommy and Daddy’s basement. In 2016, an alarming 34.1% of 18- to 34-year-olds lived with a parent.

The “Basement Generation” makes a sad testament about the state of our economy.

But I place most of the blame at the feet of Mr. Magoo (Ben Bernanke) and Mrs. Magoo (Janet Yellen).

Their ridiculously nearsighted, low-interest-rate policies have made it impossible for millions of Americans to afford a home.

Heck, even the people who build houses for a living are worried. Just look at the Housing Market Index compiled by the National Association of Home Builders.

The NAHB calculates its Housing Market Index based on the sentiment of members who sit on its board.

The association asks these home builders to characterize the housing market as “good”, “fair” or “poor.” If all panelists respond that it’s “good,”, then the index is 100. If all answer “poor,” then the index is 0.

For July, the Housing Market Index dropped to 64 from 66 a month earlier. That was down from 67 six months ago.

Sentiment — like the NAHB survey — is one thing. But cold, hard sales data is another.

In July, the growth rate for Existing Home Sales declined to just 0.73%.

Yeah, homes are selling … just at a VERY slow pace.

The weakest part of the real-estate food chain is the commercial sector, which includes apartment buildings.

Commercial real estate prices are on the verge of posting the first year-over-year decline since 2007. If that happens, it will only be the sector’s third year-over-year decline in nearly 30 years.

What does all this mean? My view is that the stock prices of the real-estate food chain are in nosebleed territory … and therefore overdue for a painful tumble.

I’m not suggesting that you rush out and sell your house tomorrow morning. I am, however, suggesting that real-estate stocks will be one of the worst-performing assets you can own.

This means you may want to stay away from buying an ETF like the iShares U.S. Real Estate ETF (IYR), which aims to track the investment results of the Dow Jones U.S. Real Estate Index.

Here’s a look at IYR’s top holdings …

Rather than avoid these stocks, if you are an aggressive investor, you have options. You could buy put options on IYR, as a bet on this ETF going down.

Or you could consider buying the ProShares Short Real Estate Fund (REK).

REK is an inverse ETF that is designed to deliver the inverse return of the Dow Jones U.S. Real Estate Index. This ETF offers a great way to position yourself for profits as this generation of renters continues to expand.

The iShares US Real Estate ETF (NYSE:IYR) was trading at $79.95 per share on Wednesday afternoon, down $0.17 (-0.21%). Year-to-date, IYR has gained 5.84%, versus a 11.43% rise in the benchmark S&P 500 index during the same period.

IYR currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #2 of 20 ETFs in the Real Estate ETFs category.


This article is brought to you courtesy of Money And Markets.