Tag: Real Estate

Categories
Forex Fundamental Analysis

Understanding The Importance Of ‘New Home Sales’ Macro Economic Indicator

Introduction

Introduction

Introduction

In any economy, demand is one of the primary leading indicators of economic growth and inflation. Therefore, the aggregate demand data plays a vital role in predicting economic growth and possible monetary and fiscal policies. Although considered a lagging indicator, the data on new home sales provides insight into households’ changing demand and their income situation.

Understanding New Home Sales

As the name suggests, new home sales provide data on the newly built single-family that were sold or are for sale during a given period. New home sales data is also referred to as new residential sales. Sales mean that a deposit for the house has been taken or a sales agreement has been signed.

The data on new home sales is derived from a survey of a sample of houses from the building permits register. Since the data obtained is from a sample survey, it is bound to be subject to sampling variability as well as non-sampling error. Response bias, nonreporting, and under-coverage factors also influence this data. Nonetheless, the data is nationally representative.

The new home sales report shows data for the new privately-owned houses and new houses by construction stage. The report presents data that are both seasonally adjusted and those not seasonally adjusted.

  • The number of units sold during the period
  • The number of units for sale at the end of that period
  • The ratio between the houses sold and those for sale
  • The median and average sale price

How to use New Home Sales Data for Analysis

Although the new home sales data is generally regarded as a lagging economic indicator of demand in real estate, there is no dispute that broader macroeconomic trends influence new home sales. Here are some of the factors that influence new home sales.

Household income: Significant changes in the households’ disposable income will change their demand for new homes. Disposable income is the residual amount after paying taxes. These income changes could be brought about by an increase in wages, reduction in taxes, or investment windfall. If there is an increase in disposable income, households’ demand for new homes will increase. They could right away purchase already completed units or get into sale agreements for houses ongoing construction. Therefore, new home sales can be expected to increase during the period of increased household income. Conversely, a decrease in disposable income will make households cut back on non-essential expenditure, such as buying new homes. Consequently, new home sales will be expected to decline.

Unemployment: The rate of unemployment in the economy is directly linked to the households’ welfare. A lower unemployment rate implies that more households have income and can thus afford to put down deposits for a new home. Similarly, the unemployment rate reduction signifies that more people can afford to service a mortgage loan. Therefore, a low unemployment rate can be correlated to an increase in the demand for new houses, hence increasing new home sales.

Source: St. Louis FRED

Conversely, higher rates of unemployment mean that more people are out of gainful employment. This instance forces households to prioritize their expenditures to cater to the essential items. Furthermore, higher unemployment could mean that more households do not qualify for a mortgage. Thus, a reduction in the new home sales can be expected with increasing unemployment.

Interest rate: In the financial markets, the prevailing interest rate determines the cost of borrowing – especially home mortgages. When interest rates are low, it means that more households can afford to borrow cheaply. It becomes easier for households to service debt without digging too much into their income, thus ensuring no significant changes in their welfare. Since most households can afford to borrow cheaply when interest rates are low, the demand for new homes can be expected to increase.

When interest rates are high, the cost of borrowing increases, and with it, the cost of a mortgage. Higher rates would restrict some households from servicing expensive debt without significantly impacting their welfare. Thus, with an increasing interest rate, it can be expected that new home sales will decline.

Impact on Currency

The new home sales data can impact a country’s currency in several ways. Here is how.

The new home sales can be used to show economic recoveries. Buyers of new homes could be speculative buyers – those who expect these homes’ prices to increase in the future then resell. To them, to them, new homes are an investment. Thus, the new home sales data can be taken as a sentiment about the economy. An increase in the new home sales could imply that the future economy is expected to improve. Similarly, in times of recessions, like the current coronavirus-inflicted recession, the new home sales data can be used to show market recovery. Therefore, an increase in the new home sales can be seen as a sign of economic recovery, which increases the value of the currency relative to others.

The new home sales can also be used to show when an economy is headed for a recession. Typically, recessions are punctuated with declining economic conditions, such as an increasing unemployment rate. Continually declining new home sales could indicate a looming recession as economic welfare of households is deteriorating. Furthermore, in these circumstances, expansionary monetary and fiscal policies tend to be implemented. These policies are designed to prevent the worst-case scenario from playing out. In the first quarter of 2020, such expansionary policies were witnessed globally. They were meant to prevent extreme economic shocks from the coronavirus pandemic. These policies result in the depreciating of the currency relative to other currencies.

Sources of Data

In the US, for example, the US Census Bureau conducts the survey and publishes the new home sales data for the US. An in-depth and historical review of the US’s new home sales is available at St. Louis FRED. Trading Economics publishes new home sales data for countries globally. Furthermore, you can access the forecast of the new home sales globally up to 2022.

How New Home Sales Data Release Affects Forex Price Charts

The most recent release of the US’s new home sales was on September 24, 2020, at 10.00 AM ET. The news release can be accessed at Investing.com.

The screengrab below is of the monthly new home sales from Investing.com. On the right, we can see a legend that indicates the level of impact this fundamental indicator has on the USD.

As can be seen, high volatility is to be expected.

In August 2020, the new home sales were 1011K compared to 965K in July. The sales were higher than the anticipated 895K. Thus, a strong USD is expected.

Now, let’s see how this release made an impact on the Forex price charts.

EUR/USD: Before New Home Sales Release on September 24, 2020, 
Just Before 10.00 AM ET

Before the news release, the EUR/USD pair was trading in a neutral pattern as the 5-minute candles formed just around a flattening 20-MA.

EUR/USD: After New Home Sales Release on September 24, 2020, at 10.00 AM ET

After the news release, the pair formed a 5-minute ‘hammer’ candle, indicating that the USD weakened. Subsequently, the pair adopted a bullish stance with the 20-period MA rising.

As shown by the above analyses, the US new home sales data release failed to produce significant volatility. Therefore, we can conclude that new home sales are insignificant in the forex market as an economic indicator.

Categories
Crypto Daily Topic

Why Tokenization is The Future of Real Estate

The real estate market is one of the oldest markets characterized by slow, paper-dependent processes causing significant delays in the change of property ownership. The transactional friction can be blamed on the complex architecture of the market that involves multiple stakeholders, large amounts of money, and numerous regulations that are dependent on jurisdiction. On top of it all, each transaction has to go through myriad middlemen, from the listing agent to banks and everything in between – resulting in unprecedented transaction costs. 

The real estate market is one of the oldest markets characterized by slow, paper-dependent processes causing significant delays in the change of property ownership. The transactional friction can be blamed on the complex architecture of the market that involves multiple stakeholders, large amounts of money, and numerous regulations that are dependent on jurisdiction. On top of it all, each transaction has to go through myriad middlemen, from the listing agent to banks and everything in between – resulting in unprecedented transaction costs. 

The real estate market is one of the oldest markets characterized by slow, paper-dependent processes causing significant delays in the change of property ownership. The transactional friction can be blamed on the complex architecture of the market that involves multiple stakeholders, large amounts of money, and numerous regulations that are dependent on jurisdiction. On top of it all, each transaction has to go through myriad middlemen, from the listing agent to banks and everything in between – resulting in unprecedented transaction costs. 

Although the structure of the real estate market alone isn’t much of a big deal as every stakeholder has a vital role to play, the resultant dysfunctions it creates needs to be solved as the market keeps on growing. As blockchain technology finds use in almost every industry, the real estate market can also make use of this technology to solve the derailing dysfunctions. This can be done through asset tokenization. 

What is real estate tokenization? 

Tokenization is the conversion of a physical asset into its digital form, which in turn derives/acquires its value from the underlying asset. Once the assets are tokenized, they can easily be divided into smaller pieces and made accessible to a wider pool of investors as a way of raising capital. As such, depending on their investment amount, an investor gets a share of the larger token to act as a representation of ownership. Also, investors can trade their token shares freely on a secondary market based on the current value of the property. 

The issuing, management, and exchange of these tokens is done on a blockchain network, thereby promoting immutable documentation processes, transparency, and traceability. Most importantly, the token investors will have undisputed control over the asset since they own the private keys of the tokens – much in the same way virtual currencies allow users to take control over their finances. 

Benefits of real estate tokenization 

Like in most industries where blockchain has found use, the real estate market is also set to benefit immensely from this technology once realtors warm up to the idea of tokenizing property. Let’s explore some of these benefits: 

I) Improved liquidity

Despite being a safe investment, the real estate market is highly illiquid majorly due to the large amounts of money transacted between the buyer and sellers, as well as the third-parties such as lawyers and banks involved in the transaction. Moreover, due to the large initial investment amount required, potential property buyers are locked out from investing in real estate. 

Property tokenization injects liquidity into the real estate market by allowing assets to be divided into smaller units representing fractional ownership. For instance, a condo going for $1 million can be divided into tokens worth $200 or less, lowering the minimum investment for investors. The tokens can be traded at secondary markets at any time of the day, allowing investors to readily change their assets to cash when they need to. Higher liquidity can also positively influence the value of the asset by removing intermediaries such as the listing agent, bringing an asset’s price closer to its true value. 

The newfound liquidity has the potential to inspire monetization of other aspects of real estate, such as leasing, spurring further development of the entire market. 

II) Automated Processing 

To facilitate the buying and selling of tokenized property, smart contracts can be introduced in the transactions for a seamless and efficient exchange of property ownership. This means less paperwork and almost no intermediaries, which in turn lowers the additional transactional costs. This also speeds up settlements as the tokens contain built-in terms of the contract. 

Smart contracts can also be used to ensure compliance with the laws is maintained. This is especially true for the Know Your Customer (KYC) and anti-money laundering (AML) policies that must be observed in every transaction. Smart contracts will reduce the paperwork involved in these procedures, saving realtors time and money. 

III) Improved market security and transparency 

Property tokens transacted on the blockchain networks are cryptographically secured on the ledger system. Access to these tokens is only limited to the investors who are entrusted with the private keys. This goes a long way into ensuring that property is held only by the rightful owner, minimizing fraud. 

In a similar vein, the distributed ledger system maintains records of all transactions in an immutable and transparent manner, further eliminating the possibility of fraudulent activities. As such, before buying tokens, an investor can review all the past transactions to ascertain the true owner of the property token, whether or not the asking price is realistic or not. This way, there won’t be instances of double-selling nor room for under/overpaying. 

Also, smart contracts further enhance the transparency and traceability of token transactions. In addition to eliminating fraud, the increased transparency brought by smart contracts opens an opportunity for overseas investors to invest in the property market. This translates to more money being channeled into the market, boosting its liquidity. 

IV) Fractional Ownership

In addition to improving liquidity, fractional ownership of property introduces a new investment vehicle through which risk-averse investors can earn passive income. Similar to equities in a security market, tokens can represent multiple owners of a rental property who earn a portion of the rent as passive income. The smart investors can diversify their token portfolio to include land and commercial properties, reducing the overall risk while maximizing returns. 

In theory, tokenization of property offers a myriad of benefits to real estate investors while scaling up the entire market with respect to exponential growth. On the downside, however, tokenization won’t be as easy as many would wish – mainly due to the regulatory hurdles facing blockchain. For starters, many governments across the globe don’t have clear laws governing the issuance of blockchain tokens. Even for those that have already set up laws regulating digital assets view tokens as a type of security or a traditional investment vehicle. This brings in the complex aspect of digital asset taxation, which may scare away investors. 

The issuers of these tokens will also have to invest a substantial amount of time and money in maintaining regulatory compliance with the stringent policies governing digital assets. Even in jurisdictions where the regulations are lenient, marketing property tokens in another jurisdiction where there are different policies will be an uphill task requiring close scrutiny. 

Conclusion

The real estate market has a history of being slow to adapt to emerging technologies. But if the market is determined to do away with long paper processes and slow turnaround time, it has to invest in blockchain technology for the tokenization of property. This will not only solve its long-time problems but also give the market a driver’s seat in the face of modernity and dynamic technological advances. 

Categories
Crypto Guides

These Industries Have the Most Acceptance Of Cryptocurrencies

Introduction

Introduction

Introduction

It ain’t a surprise anymore that the cryptocurrency market is taking over several industries. Yes, it did have ups and downs but has still managed to grow at an exponential rate. In recent years, more and more people are opting to use cryptos as an alternative for fiat currencies. In the present date, there are just under 5000 cryptocurrencies listed on CoinMarketCap.

This decentralized currency has been disrupting quite a number of businesses. As they are decentralized, there are many uses of it in many fields. In the article, we have listed out some of the real-life examples of industries that are already implementing cryptocurrencies in their businesses.

Where and how are cryptocurrencies being used?

✈️ Travel Industry

The traveling industry has been using Bitcoin for quite a lot of time. There are companies that have been accepting payments in the form of Bitcoins. A great example of this would be Cheapair.com, a travel booking company, which has been accepting payments in the form of Bitcoins for booking flight tickets, hotels, car rentals and cruises since 2013. This is a great feature enabled by Cheapair.com, as it is hassle-free for customers to book tickets from anywhere in the world.

🏠 Real Estate

Ever thought one could buy houses with cryptocurrency as a mode of payment? Well, this is true. ‘Propy.com‘ is the world’s first international blockchain-based payment real estate that accepts Bitcoin as payment for buying properties. ‘Mycoinrealty.com‘ is another real estate firm which has the facility to purchase homes using Bitcoins. A few real-life examples for the same would be the purchase of a villa in Indonesia worth 1000 BTC in 2014, a home in Vegas amounting to 157,000 BTC, and 3 acres of land in Paradise Bay.

🕸️ Social Media

Back then, social media was the place where one could share their thoughts and feelings. But now, things have changed; as in, the social media space has grown to the extent that one can earn from these websites. There is a social media website that has been helping people in the career circle. ‘Vanywhere‘ is one such social media website that implements blockchain in its technology. This is a gig economy platform that uses the blockchain network to connect users with some specialized skills to those users who are in need of those particular skills. The transactions here are performed through cryptocurrencies.

🎮 Gaming Industry

Cryptocurrencies are spread over the gaming space as well. Cryptocurrencies in the gaming industry are not just a concept but is a real-life application. There are online gaming platforms that transact using cryptocurrency. A great example would be the ORB project. This is a game that enables players to cash their in-game assets into other assets, including cryptocurrency. This cryptocurrency can then be exchanged for fiat currencies if needed.

Bottom Line

These are only a few of the many industries where cryptos have maximum acceptance. From the above real-life examples, it is evident that cryptocurrency is a factor for the evolution of several industries in the market. Be it social or economic, it is playing a pretty decent role in revolutionizing the world. The expectation of blockchain & cryptocurrency is quite high. And it is no doubt that this technology is going to disrupt many other industries in the years to come. Cheers.