🎙️ Broader Scope

🥂 Cheers to the first official weekend of summer!

Get this: The S&P 500 has gone 378 days without a 2.05%-plus sell-off, the longest stretch for the benchmark since the great financial crisis.

Conversely, the index hasn’t gained at least 2.15% during one session over that period.

The takeaway: Volatility remains near historically low levels as the major benchmark keeps chugging higher.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Why home prices keep climbing higher

• The next act for Blackstone’s $339 billion property arm

This, and more, in just 5 minutes to read.

Chart of the Day

Sponsored Content

Private Markets, Powered by Collective Expertise of HNW Investors

Investing in private market opportunities is challenging. The difference between success and failure in private markets comes down to your network.

Long Angle is a vetted community of 3,000 high-net-worth investors who leverage their collective expertise and scale to access and underwrite some of the world’s best alternative asset investments.

After reviewing hundreds of opportunities, Long Angle diligence deal teams greenlight a dozen deals each year. Asset classes range from Private Equity, Search Funds, and Private Credit to Secondaries, Real Estate, and Venture.

No membership fees. All members receive equal access to negotiated fee discounts powered by the community’s $45 billion in collective assets.

In The News

🏠 Why Home Prices Keep Rising

It’s been a while since we discussed housing, which continues to pose a major affordability problem.

Consider: Home prices reached a new record high in May after the national median existing-home price hit $419,300, according to National Association of Realtors (NAR) data. It represents a 5.8% increase from a year ago.

• As you likely know, home prices have surged dramatically in recent years, outpacing income growth and making it increasingly difficult for many buyers to afford a home.
  

• The market presents a unique situation where sales activity is low, yet prices are at record highs. It’s primarily due to limited housing inventory, as high mortgage rates discourage potential sellers from listing their homes. 

This week, the average rate on a 30-year fixed-rate mortgage stood at 6.87%, a big increase from about 3% in early 2022, just before the Federal Reserve began raising interest rates.

Cash is king: The affordability challenge is evident when comparing current prices to pre-pandemic levels. In February 2020, the median price of an existing home was $270,400. Since then, the mortgage payment for a median-priced home has doubled. 

• Cash buyers, who are less affected by mortgage rates, are playing a big role in this market. In May, 28% of existing homes were purchased in cash, up from 25% a year earlier.
  

• Meanwhile, housing inventory is slowly increasing. At the end of May, the number of homes for sale or under contract rose 6.7% from April and 18.5% from May 2023. 

Consumer sentiment reflects market conditions. A May Fannie Mae survey found that only 14% of consumers believed it was a good time to buy a home, matching the record low in data going back to mid-2010.

7% is the magic number: Market dynamics are causing homes to stay on the market longer. Economists suggest that mortgage rates around 7% seem to be a psychological threshold for buyers. Activity picks up when rates dip below this level and slows when rates rise above it.

Why it matters:

It’s a particularly challenging market for first-time buyers and those with limited financial resources (or even those in the middle class). This has eroded affordability across much of the country, making the dream of homeownership elusive for many.

Several factors are at play:

High mortgage rates: Rising interest rates have increased the cost of borrowing, reducing affordability for many potential buyers.

Limited housing supply: The inventory of available homes remains low, creating intense competition among buyers and driving up prices.

Rapid price appreciation: In many areas, home prices have increased by 40% or more since 2021, pushing homeownership out of reach for many. Other areas, including Austin, Texas, and parts of Florida, have seen home values double during the pandemic. 

Decreased purchasing power: The average household's ability to afford a home has drastically diminished. In 2019, median-income households could afford median-priced homes in 94% of U.S. counties. Today, that figure has dropped to just 63%.

Widespread difficulty: This is not limited to traditionally expensive markets. Even in areas with below-average list prices, buyers face affordability challenges due to competition and scarcity.

Competitive market conditions: Many homes are selling quickly, often above list price, further complicating the buying process for potential homeowners.

End game: Nobody knows how this will play out. A gradual market cooling would help, as could more housing supply, lower interest rates, wage growth, and alternative housing solutions to reduce costs and increase supply.

Read more

More Headlines

🏦 Bank of England keeps interest rates at a 16-year high of 5.25%

⚠️ Nvidia’s surge reveals a pitfall of passive investing

🥵 More major heat waves expected in late June and July across the U.S.

🤖 Where AI is replacing human tasks faster than you might think

💰 How Apple is winning in financial services

🏗️ Blackstone's $339 Billion Property Arm

Above, we detailed today’s unique residential housing market, with high prices, (relatively) high rates, and low inventory. Now, we’re breaking down what the world’s largest real estate investor has been up to. 

Blackstone, the world's largest real estate investor with $339 billion in global property assets, has shifted its portfolio strategy over the past 16 years. 

In 2007, when Blackstone acquired Equity Office Properties for $39 billion, traditional U.S. office properties made up about 60% of its real estate holdings. Today, that figure has shrunk to less than 2%. That’s no small shift, and it’s worth examining with a closer eye. 

Broader scope: The transformation reflects Blackstone's adaptation to changing market conditions and technological disruptions. The firm has pivoted toward sectors like logistics, student housing, and life sciences. 

Dry powder: Blackstone's real estate arm now has $65 billion in dry powder, ready to be deployed on new deals. This significant financial resource holds the potential to reshape the real estate landscape, offering a glimmer of hope and opportunity in an ever-evolving market. 

• But with interest rates higher, the era of easy returns from yield compression is over. Blackstone's leadership, including Nadeem Meghji and Kathleen McCarthy — who oversees the global property division — told Bloomberg they need a more selective approach.
  

• The firm has boldly moved into new territories, such as data centers. In one project in England, Blackstone might eventually invest billions in a shift toward riskier ground-up construction projects.

Blackstone's BREIT fund, which targets retail investors, encountered some challenges in late 2022 when it had to cap withdrawals. To shore up confidence in the fund, the firm secured a $4 billion investment from the University of California.

Blackstone remains optimistic about the real estate market overall. The firm sees opportunities in sectors where supply is constrained, such as logistics and rental housing.

Why it matters:

Blackstone's strategy has undergone a big transformation since the financial crisis, marked by a strong push toward diversification. The firm has dramatically shifted its portfolio composition, moving away from its pre-crisis focus on traditional U.S. office properties. 

Strategic pivot: Blackstone is moving toward higher-growth sectors such as logistics, rental housing, life sciences, and hotels, which now collectively represent about 80% of Blackstone's portfolio.

• Specifically, the company has sharpened its focus on areas where rent increases outpace inflation by two to four times.
  

• Operational improvements and active asset management have become increasingly central to Blackstone's value-creation strategy.
  

• Blackstone's global footprint has expanded, with a growing emphasis on opportunities in emerging markets. The firm has also recognized the importance of brand power, hiring advertising executives to build brand equity for portfolio companies and participating in acquisition due diligence. 

Bottom line: With $65 billion to invest in a more challenging environment than before, Blackstone's ability to maintain its position as the biggest player and a selective deal-maker will be tested.

Read more

Together With First National Realty Partners

Attention Investors! Experience future-focused investing with FNRP. 

Specializing in commercial real estate, FNRP offers investors exclusive access to opportunities with the potential for passive income and capital appreciation. Join today and elevate your investment strategy for the future.

*Sponsored content

Quick Poll

Yesterday, we asked: How concerned are you about the rising dominance of a small number of trillion-dollar tech giants like Apple, Microsoft, Amazon, etc.?

— A good chunk of readers are either very concerned or fairly concerned, saying, “There are two concerns. From an investor's point of view, any missteps can lead to large corrections. Second, these valuations show the tech ecosystem is not healthy. New players are not coming up to disrupt existing business models.”

— Among readers who aren’t concerned: “These things come and go in cycles. Sure, a black swan event can make one tank rapidly, but there will be companies bigger than these a few decades from now that no one saw coming.”

See you next time!

That's it for today on We Study Markets!

Enjoy reading this newsletter? Forward it to a friend.

Was this newsletter forwarded to you? Sign up here.

Use the promo code STOCKS15 at checkout for 15% off our popular course “How To Get Started With Stocks.”

Advertise with us.

Follow us on Twitter.

Keep an eye on your inbox for our newsletters on weekdays around 6pm EST and on weekends. If you have any feedback for us, simply respond to this email.

You can also leave your comments/suggestions/feedback anonymously here.