US REAL ESTATE TEAM, June 27, 2017
We are currently BULLISH on the real estate market in the US. Our view of the US real estate market is based on a statistical model designed to predict future housing prices within a cycle framework. The algorithm analyzes a broad range of fundamental factors to forecast future demand and supply conditions. The most important drivers are prime and subprime mortgage rates, affordability, lending conditions, housing starts, homebuilder confidence, home sales and inventories, purchase and refinance mortgage volumes, mortgage delinquency rates, foreclosure rates, bankruptcy rates, rent growth, consumer credit demand, remodeling activities, home vacancy rates, rental vacancy rates, debt service ratios, mortgage spreads, inflation rates, payroll, unemployment rates, jobless claims, wages, household saving rates, personal income, and consumer confidence. These factors are essential in determining the principal force behind the outlook for the real estate market in the US.
Based on a scale from 0 to 100, with 100 being the most bullish and 0 being the most bearish, our latest model reading for housing prices in the US is 86.12. The average return of the bullish periods projected by the model is 34.89% and the annualized return of the bullish periods is 6.69%. Measuring the risk-adjusted performance, the model has produced a Sharpe Ratio of 3.74, which is driven by the model's standard deviation of 1.79%. For comparison purpose, the Sharpe Ratio of the buy and hold strategy for the real estate market in the US is 1.67. The Sortino Ratio, which measures the relative returns of the model over its downside deviation of 0.35%, is at 18.35. The Calmar Ratio, which is the ratio of the average return over the maximum price drop in real estate market downturns, is at 3.24. The calculation of the model for housing prices in the US took 1.51 hours per CPU core to complete at our central computation workstations, which are a group of powerful computers that perform statistical computation continuously 24 hours day and 7 days a week to produce real-time investment ratings for the real estate market in the US.
Our current model result suggests that fundamentals are likely to keep housing prices in the US strong for the foreseeable future. For that reason, we are comfortable about our current positive view of the housing market in the US. The table below shows selected drivers that have significant recent updates. They are among the large macro database on which we perform statistical analysis to develop views on the real estate market. We do not rely only on any single factor to model our investments. Instead, the cross relationships of all the factors and time series are researched back over many real estate cycles in both secular bullish and bearish periods. The goal of our algorithm is to project future housing price trends and optimize the risk/return profile of real estate investments in the US.
Our Housing Price Indicator for the US is the most timely housing price gauge that we know of. Our propriety methodology removes the delays (typically by a quarter) associated with other housing series. This allows our indicators to lead the housing indices from other sources by more than three months and the government indices by five months, giving our users a significant advantage in obtaining timely price information to enter and exit the real estate market in the US ahead of other home buyers and real-estate investors.