Is a recovery underway in the US housing market? Investors on Wall Street certainly think so. One over-excited fund manager called the blog recently to exclaim “housing starts were at 500k, now they are at 900k, and they’ll be back to 2 million within a year or two”. His definition of a pessimist was someone only forecasting 1.3m starts next year.
Sadly, of course, this is wishful thinking not reality. As the greatest expert on US housing, Prof Shiller of Yale University, has warned:
“The unfortunate truth is that the tea leaves don’t clearly suggest any particular path for prices, either up or down”
The chart above, showing latest US house prices from the S&P Case-Shiller house price index confirms his point:
• Prices rose a little in H1 2012 (green line) on a relative basis
• This January (red square) they were ‘only’ 30% down from their peak, instead of being 35% down in 2012. This is hardly a ‘recovery’ in the normal use of the word
• Equally, the buying interest to support prices had not come from prospective homeowners. Instead, it is from private equity groups such as Blackstone, who are entering the rental market using cheap homes bought at foreclosure
Blackstone are now the largest owner of single-family homes in the country. They have bought 20k so far, mainly via foreclosure. Others have followed on a smaller scale. As the New York Times notes, the impact is that around one in three home sales are now in cash, compared to a normal level of one in ten. This buying interest has stopped prices falling, temporarily, but it does not translate into demand for new homes.
Equally important for the longer-term perspective is the aging of the US population. 26% are already in the New Old 55+ generation, and 350k Americans are due to retire each month until 2030. They will largely be downsizing, or moving in with their adult children to reduce costs. One thing they will probably not be doing is buying new homes in which to start families.
Any company hoping for a sustained recovery in the housing market is likely to be very disappointed.