The downturn in the housing market might be slowly coming to a close, suggests a new report from the Royal Bank.
Several Inverse and Leveraged ETFs have been notable players this year, and with the U.S. housing market already starting to cool off thanks to rising rates, investors may want to look at a real estate bear ETF like the Direxion Daily Real Estate Bear 3X Shares ETF (DRV).
To be clear, inverse and leveraged ETFs are powerful tools and not to be taken lightly, traded daily with rapidly shifting exposures – but the potential is there to benefit from a U.S. housing market buckling not only from rising rates but also to some extent under its own weight.
New for-sale listings on the market were weak in September, dropping for a third straight month at 11.4% from August. Furthermore, while construction has slowed, with single-family housing starts down to the lowest in more than two years. Perhaps more concerningly is how far the housing market has fallen off since 2019, still 38% below where total inventory was in 2019.
While prices have a long way to go from their already high levels over the last few years before hitting a “crash” scenario, there’s a strong bear argument to be made, and that’s where investors can look at DRV, which has already provided its investors some strong performances in a wild year so far.
DRV offers -3x daily leverage to a U.S. Reit index, the S&P Real Estate Select Sector (300%), and are not appropriate for investors who don’t have the time to monitor the position daily, at the same time, those investors should know that the -3x approach is a daily goal, with multiple trading sessions tied more to the index’s performance.
Investors considering DRVs may think of the ETF as a kind of hot hand to be rotated on and off the floor for blistering scoring runs but watched closely to avoid cold streaks. DRV has returned 100.1% YTD compared to 68.3% for the Factset Segment Average, with 43.5% over the last three months compared to 29.2% for the Factset Segment Average.
DRV has taken in $40 million in net inflows over the last month as well, according to VettaFi, and charges a 99 basis point fee.
For those looking for balance with DRV, also make sure to check out the Direxion Daily Real Estate Bull 3x ETF (DRN) to benefit if the real estate goes the other way.
For more news, information, and strategy, visit the Leveraged & Inverse Channel.
Canadian real estate crisis needs private-sector help: CMHC
A new report by Canada Mortgage and Housing Corp. says government alone can’t solve the country’s housing affordability challenges.
The scale of the problem is so large that the private sector must be involved, says the report by CMHC deputy chief economist Aled ab Iorwerth.
The national housing agency says public solutions such as rent subsidies and more social housing are helpful, but more needs to be done.
In a June report, on housing shortages and what the CMHC called an “affordability crisis,” the agency estimated that an additional 3.5 million housing units would be required to achieve affordability by 2030.
“To address this imperative, we need more private-sector investment to build more supply in the housing market, particularly in the rental sector,” ab Iorwerth said in the report.
The report notes that government incentives can be used to make it more attractive for companies to build additional housing, particularly the rental supply in fast-growing markets including Toronto, Vancouver, Montreal, Victoria and Halifax.
Although housing affordability is most difficult for low-income Canadians, the report notes that prices are out of reach for those with higher incomes as well.
“The housing system is interconnected, so fixing Canada’s affordability challenge requires a suite of policies to affect the entire system.”
Home prices have eased this year as the real estate market has cooled, but they are coming off record levels earlier in the pandemic.
The report says the imperative of increasing housing supply will be even greater as Canada seeks to attract more immigrants.
This report by The Canadian Press was first published Nov. 28, 2022.
Certus Capital invests Rs 30 cr in EON, a prime real estate project in Mumbai
Mumbai, Nov 28 Certus Capital, an institutional real estate investment and advisory company founded by former KKR director Ashish Khandelia, has invested Rs.30 crore in EON One, a residential project located at a prime south central location in Mumbai and being developed by EON group that has 30 years of experience in Mumbai real estate. This secured debt investment opportunity will soon be available for the investors through Earnnest.me, the digital neo-financing platform of Certus Capital.
With this Rs 30 crore investment, investments through Earnnest.me have crossed Rs.100 crore within months after its launch in February 2022.
This is the third deal closed by Earnnest.me in quick succession following Rs.40-crore investment in mid-market residential project being developed by Pune-based real estate development firm Pharande Spaces and another Rs.40-crore investment in Chennai-based real estate company Arun Excello’s portfolio of four affordable housing projects.
Commenting on the investment, Ashish Khandelia, founder of Certus Capital and Earnnest.me said, “This investment in EON is a part of Certus Capital’s strategy to fund well placed projects being executed by experienced developers in Tier 1 cities. The residential real estate sector is witnessing a stronger demand revival and improved sales. At Earnnest.me, we’ll continue to offer carefully selected and diligenced investment opportunities in the real estate sector to our investors.”
The company has plans to deploy about Rs 500 crore in FY22-23 in senior secured real estate credit deal through Earnnest.me. As a part of its strategy, Certus Capital takes up 10-15 per cent of each investment to ensure its presence throughout the investment cycle.
So far, more than 200 investors with a minimum investment ticket size of Rs 10 lakh have invested in various such credit opportunities through Earnnest.me. The platform has witnessed over 50 per cent repeat investing interest. It has a diversified clutch of investors which includes real estate professionals, finance experts, family offices, CXOs, UHNI, professionals, etc. Earnnest.me continues to actively evaluate deals across Tier 1 markets including Hyderabad, Bengaluru, Pune, Mumbai and Chennai.
Certus Capital continues to grow its leadership team and has added several senior hires. The company has recently appointed former Deloitte India executive Vishal Singh bolster its institutional investment banking business. The other recent appointments include ex-Piramal Capital executive Gaurav Bhalla as Director and ex-Deloitte India executive Siddharth Pal as Senior Vice President.
Across the twin platforms, Certus Capital is working through investment and advisory deals ranging from Rs 25-1,000 crore.
Certus Capital is also planning to launch its first category-II alternative investment fund (AIF) in 2023.
Since its inception in 2018, Certus Capital has evaluated over Rs.40,000 crore of real estate credit exposure forming part of NBFCs and, housing finance companies. Certus has also advised foreign institutional investors on close to Rs 10,000 crore of closed investments / platform commitments in real estate credit and warehousing space.
Pace of real estate decline finally slowing
Prices in Cambridge, for example, are off 22%, while London and Brantford have seen an 18% decline. Kitchener-Waterloo, Kawartha Lakes and Hamilton/Burlington have all had a 17% drop in prices.
While Toronto’s decline has been 11%, prices are expected to fall further.
Toronto also saw a drop of almost half (49.3%) in numbers of home sales in October versus October 2021, while new listings were down 11.5%.
For those on the sidelines wondering when or if to buy, a Toronto mortgage expert (who prefers not to be named) has some words of wisdom.
For starters, he prefers to keep all the gloom and doom on the down-low. A correction notwithstanding, real estate remains a solid investment.
So on the plus side, “with the correction have come reduced prices and reduced closing costs, especially in the GTA,” the expert said.
That’s provided you don’t have a lot of other debt, obviously.
As for figuring out your monthly mortgage payments, calculate $6 per thousand; a $500,000 mortgage will cost $3,000 a month, for example.
The fact that a one-year mortgage is currently at the highest rate and the five-year rate is lower — an inverted yield curve — is a sign of uncertainty.
“For the first time in my career, I’m not telling people what to do. Instead, I’m telling them their options,” he said.
The consensus seems to be that the worst is behind us, “but we’re heading into stagnation. Things will level off, but we need stability.”
There’s very little on the market right now, but the expert’s expectation is that things will pick up after March break, when young families will start looking again in earnest.
“The banks aren’t taking any chances. Anyone who thinks the banks are just giving money away — no! It’s never been tougher to get credit.”
Last word: focus on your debt. “I used to say, ‘Continue to save.’
“Now I say, ‘move from investing to getting rid of debt.’”
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