In The Headlines

Under One Roof: Multigenerational Homes Grow in Popularity

Miami-based builder Lennar is offering a new type of house these days called a “NextGen” home. The brand is doing very well for Lennar, which has made a heavy push into the multigenerational housing segment. Year-over-year, sales of NextGen grew by 24% in the third quarter of 2014, the latest company report available. It offers the floor plans in more than 200 communities nationwide, and the average sale price is about a third higher than the company’s overall average, according to Lennar officials.

“Older homes were built for young families, and we have 21 million households now living multi-generationally, with one generation having to share a bathroom that’s used by the entire house, some people live in the garage,” said John Burns of John Burns Real Estate Consulting. “I think the builders figured out there was a huge opportunity here that they had missed, and Lennar was a real leader in this a few years ago, designing for these types of households.”

In a recent survey of 20,000 home buyers by Burns Consulting, 44% said they would like to accommodate their elderly parents in their next home, and 42% said that they plan to accommodate their adult children. The numbers are increasing for several reasons: The recent recession and resulting unemployment hit young workers hardest; an abnormally high number of these young workers never moved out of their parents’ homes. Millennials (people born from 1980 on) are also marrying later in life, and so they are staying with their parents longer.

Immigration is another driver. In Asian and Hispanic cultures, multigenerational living is usually the rule. As these immigrants move to the U.S. in greater numbers, they bring the trend along with them.

In addition, there are retiring baby boomers who are downsizing. Some are choosing active adult communities, but a significant number are choosing to move in with their adult children. With more dual income households, help from live-in grandparents is often a necessity.

It is no surprise, then, that homebuilders are seeing dollar signs in families who are doubling up. Pardee Homes, a division of California-based Tripoint, offers the GenSmart brand of multigenerational homes. Smaller, local builders say they are getting more requests for these floor plans as well. “I think everybody is jumping in,” said Burns. “In this industry, when somebody does something successful, everybody jumps in.” Builders are now seeing and acting on a clear multigenerational wish list: Separate entrances are a must, then main-floor bedroom suites with private kitchenettes and living spaces, and even separate outdoor spaces. The idea is that the family can live under one roof, but not entirely together.

Economics certainly plays into the multigenerational mindset, but there may be a cultural shift as well. “The baby boomers were just very unique; they are really the only generation in history that would move out of the house as soon as they go out of high school or college,” said Burns.

Citations
1. http://cnb.cx/1LbagLk – CNBC
2. http://pewrsr.ch/1kz2AFm – Pew Research Center

Overcapacity Hurts Shippers as China’s Trade Slowdown Deepens

When business slows and owners of ships and offshore oil rigs need a place to store their unneeded vessels, they contact International Shipcare, a Malaysian company that mothballs ships and rigs. These days the firm is busy taking calls from beleaguered operators with excess capacity. There are 102 vessels laid up at the company’s berths off the Malaysian island of Labuan, more than double the number of just a year ago—and more are on the way. “There’s a huge demand,” says Saravanan Krishna, Operations Director. “People are calling us not to lay up one ship but 15 or 20.”

Shipbuilders, container lines, and port operators feasted on China’s rise and the global resources boom. Now they are among the biggest victims of the country’s slowdown and the worldwide decline in demand for oil rigs and other gear amid the oil price plunge. China’s exports fell 1.8% in 2015, while its imports tumbled 13.2%. The Baltic Dry Index, which measures the cost of shipping coal, iron ore, grain, and other non-oil commodities, has fallen 76% since August and is now at a record low. Shipping rates for Asia-originated routes have dropped, too, and traffic at some of the region’s major ports is falling. In Singapore, the world’s second-largest port, container traffic fell 8.7% in 2015, the first decline in six years. Volumes at the port of Hong Kong, the fourth-busiest, slid 9.5% last year. Beyond Asia, the giant port of Rotterdam in the Netherlands recorded a dip in containerized traffic for the year. Globally, orders for new vessels dropped 40% in 2015, to $69 billion, according to London-based consulting firm Clarksons Research. During the same period, the demolition rate for unwanted vessels jumped 15%.

Just a few years ago, as the global economy improved and oil prices rose, many companies ordered more fuel-efficient ships. There were more than 1,200 orders for bulk carriers that transport iron ore, coal, and grain in 2013, compared with just 250 last year, according to Clarksons Research. Many of the ships ordered are now in operation, says Tim Huxley, Chief Executive Officer of Wah Kwong Maritime Transport Holdings, a Hong Kong-based owner of bulk carriers and tankers. “You have a massive oversupply,” he says. The damage is especially severe in China, the world’s leading producer of ships. New orders for Chinese shipbuilders fell by nearly half last year, according to the Ministry of Industry and Information Technology. In December, Zhoushan Wuzhou Ship Repairing & Building became the first state-owned shipbuilder to go bankrupt in a decade.

The yuan has dropped 6% since last August. While that should help exports, Hutchison Port Holdings Trust, a company controlled by Hong Kong billionaire Li Ka-shing that runs some of China’s top container terminals, has yet to see an uptick in outbound business. According to Ivor Chow, Chief Financial Officer of Hutchison, the devaluation is leading to a slowdown in traffic as customers wait to see how much lower the yuan will fall. “People are really hesitant to commit to orders at this point,” he said. The slowdown is hurting many Chinese ports. Sales at Shanghai International Port were 7.5 billion yuan ($1.1 billion) in the third quarter, down from 7.6 billion yuan the year before, and net profit was 1.4 billion yuan, a decline of 18%. The Shanghai Shipping Exchange Containerized Freight Index has dropped 27% since the start of 2015. While container volume at Shanghai’s port, the world’s largest, grew 3.7% last year, down from 4.8% growth the previous year, and was largely the result of taking market share away from high-cost rival Hong Kong, according to Bloomberg Intelligence analyst John Mathai.

The slide in oil prices is especially painful in Singapore, home to Keppel and Sembcorp Industries, the world’s two largest producers of offshore oil rigs. Orders for the two companies dropped in 2015 to their weakest levels in six years. Temasek Holdings, which has major stakes in both Keppel and Semcorp is discussing the sale of non-core assets or issuing new shares. It is in discussions with company executives about raising cash by selling non-core assets or issuing new shares. “We have to plan for a longer winter,” Keppel CEO Loh Chin Hua said on a call with analysts.

In December 2015, South Korea announced plans to establish a $1.2 billion fund to help local shipping companies pay for new vessels they have ordered, according to the Ministry of Oceans and Fisheries. The government will push shipyards to downsize and focus on their core businesses—one shipbuilder operated a golf course. Hyundai Heavy Industries, the world’s biggest shipbuilder, said recently that it had suffered its ninth consecutive quarterly operating loss, following a 1.7 trillion-won ($1.4 billion) loss in 2014.

There are some bright spots. Companies that operate oil tankers have been busy as customers take advantage of record-low crude prices to build up their inventories: Orders for new tankers increased 14% last year, according to Clarksons. Back in Malaysia, International Shipcare’s business is so strong that the company is running out of places to store customers’ ships. Since the start of December, demand has spiked about 30%. “It’s unprecedented,” Krishna said, adding that he is hoping to add capacity.

Citations
1. http://bloom.bg/1QuUigB – Bloomberg
2. http://bit.ly/1Qek0Wi – World Maritime News

The Good News Is . . .

• A sharp drop in interest rates prompted more homeowners to refinance their mortgages last week, especially those with large loans, according to the Mortgage Bankers Association. Total mortgage application volume increased 9.3% on a seasonally adjusted basis from the previous week. Interest rate-dependent refinances were primarily responsible for the gains. Applications to refinance a home loan rose 16% from the previous week, seasonally adjusted, while those to purchase a home rose 0.2% for the week.

• Humana, Inc., a leading healthcare insurance provider, reported earnings of $1.45 per share, an increase of 33.0% over year-earlier earnings of $1.09 per share. The firm’s earnings topped the consensus estimate of analysts by $0.01. The company reported revenues of $13.4 billion, an increase of 8.4%. Management attributed the company’s results to improved operating margins from its Group and Healthcare Services segments, and higher investment income associated with the repositioning of its investment portfolio.

• Mylan announced that it would acquire Swedish drug maker Meda for cash and stock. Including Meda’s debt, the deal is valued at $9.9 billion. Among the motivations for the deal was Mylan’s desire to gain greater exposure to over-the-counter products, which represent 40% of Meda’s product sales, and entry into emerging markets. Meda focuses largely on respiratory, dermatology, and pain products. By acquiring Meda, Mylan is bringing together more than 2,000 products, including consolidating the EpiPen Auto-Injector for allergic reactions.

Citations
1. https://bit.ly/1oaJSvQ – Mortgage Bankers Association
2. http://cnb.cx/1gct3xa – CNBC
3. http://bit.ly/1T70NLr – Humana, Inc.
4. http://nyti.ms/211wx7i – NY Times Dealbook

 

Planning Tips

Strategies for Investing in the Return of Higher Oil Prices

Oil prices have dropped precipitously in recent months due to the fact that there is currently more supply than demand. This oversupply was caused by the slowing global economy and the unwillingness of OPEC to cut production. According to the International Energy Agency, the imbalance of supply and demand may continue through 2016. As the history of oil demonstrates, this imbalance of supply and demand will inevitably change and the price trend of oil will likely invert. Below are some strategies for investing in such a change. Be sure to consult with your financial advisor to determine if these investments are appropriate for your personal situation and risk profile.

Stocks of major oil companies – Owning a company like ExxonMobil or Chevron is a straightforward way to participate in an upward move of oil prices. You can buy these shares through your online broker or financial advisor. One of the advantages of investing this way is the dividend these stocks typically pay. While you wait for the stock to rise because oil has rebounded, you can get paid a dividend from the company you own. However, these companies do not necessarily move in lock-step with the price of the commodity, because these large businesses are also involved in many other aspects of the oil business, such as refining, which actually would not benefit from higher oil prices.

Stocks of oilfield services companies – When oil prices rise, oilfield services see their day rates skyrocket, as upstream oil companies scramble to increase production, causing demand for drilling rigs and other oilfield services to go through the roof. Machine tools and accessories companies also benefit, as they sell individual parts to oilfield services companies that build, retrofit, and repair rigs. Deepwater drilling contractors like Transocean and Diamond Offshore Drilling are even better off than their peers in the oilfield services industry; there are far fewer deep-water rigs in the world than normal rigs, and with conventional wells drying up, oil companies have been willing to pay more to get at the difficult-to-reach reserves.

Oil ETFs – Buying an Exchange Traded Fund (ETF) that invests in oil is a great way to quickly and easily invest in oil, but it comes with its own set of issues. First, it is quick and easy because ETF’s trade on the major stock exchanges and can be bought through your online broker or financial advisor. The biggest problem with these types of ETF’s is that the funds do not always follow the price movement of the underlying commodity. The reason for this is that these funds are actually buying futures contracts. Because you are buying into a mutual fund of futures contracts that are constantly facing expirations or maturities, the fund has to replace the expired contract with a new contract, at the current market price. Also, some of these funds use additional leverage to enhance returns, which means that if oil prices move in the wrong direction, the ETF can sustain greater losses.

Oil Master Limited Partnerships – Oil MLP’s (Master Limited Partnerships) are another way to be a long-term investor in the oil and gas sector, without worrying about expiring futures contracts. These companies typically own oil and gas pipelines that carry the commodity from one part of the country to another. They commonly offer a very attractive dividend payment and can be purchased very easily through your online broker or financial advisor. Also, there are several mutual funds that invest in MLP’s, which would offer you more diversification. Note that the stock prices of these companies do not necessarily move in lock-step with the price of crude oil.

Oil futures – Buying oil futures is the most direct way to purchase the commodity (aside from literally buying barrels of oil, which most people cannot do because they would need to store it somewhere). This can be done through a commodities broker, where you are buying a contract to purchase oil at a future date and price per barrel. The risks of buying oil futures are that you have to be correct on the price movement, and correct on the timing of the price movement. For many investors, this may entail taking on more risk than they feel comfortable holding in their portfolios.

Citations
1. http://bit.ly/1XqsbEB – Motley Fool
2. http://onforb.es/1Pv6bFA – Forbes
3. http://bit.ly/1LnabUK – WikiInvest
4. http:// bit.ly/1QewnI1 – MoneyCrashers.com
5. http://yhoo.it/1Pv6lwQ – Yahoo Finance