US housing starts rise as investors buy into rental sector

Consumer demand

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US house Oct12.pngUS housing markets have been a disaster for many homeowners. Overall, they have lost $6tn since the collapse began in 2006. Nationally, prices are still down 32% versus their peak, according to the Case Shiller Index.

Temporarily, however, the market is continuing to stabilise. Banks have slowed the rate of foreclosure, and are wary of running into more trouble with regulators, after the ‘robo-signing’ problems of the past 18 months. But stabilisation is not the same as recovery:

• 11m Americans still owe more than their house is worth
• There are around 3.3m homes in ‘shadow inventory’
• These are either in the foreclosure process, or have missed payments for 3 months
• One in every 248 housing units had a foreclosure notice in Q3

On the more positive side, housing starts has begun to improve, as the chart shows. They jumped to 872k in September, with building permits also rising to 894k. These are easily the strongest numbers since the crisis began.

But the buyers are mostly not ordinary Americans seeking to buy a new home. Instead, the money is coming from investors seeking to rent out property to those now unable to buy. Many are private investors, buying locally. But private equity funds have already raised $7.2bn.

The driver, as Pimco (the world’s biggest bond fund managers) note, is that at least another 4m Americans will need to move into the rented sector, as foreclosures continue.

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