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US housing recovery gathers pace. What was once a property overhang has transformed into a shortage.; The numbers themselves are staggering and suggest that residential construction needs another boom to balance the ledger
Topic Started: 26 Aug 2015, 02:25 PM (860 Views)
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The US housing recovery gathers pace

Callam Pickering

Momentum has gradually firmed in the US housing market this year, supporting jobs and household wealth, but progress could come to a screeching halt if the Federal Reserve embraces policy normalisation too soon.

A single rate hike is unlikely to do much harm but further rate hikes next year could undermine much of the recent progress made across the housing market. Recent market turbulence certainly hasn’t helped but at this stage is relatively isolated and shouldn’t concern property developers or buyers.

Nevertheless, recent losses are likely to delay policy normalisation until at least next year. Some economists even believe that another round of quantitative easing could be in the pipeline. Both scenarios are likely to support activity in the housing market.

The housing market is tentatively poised at present. It could quite conceivably boom or bust in the next three years and neither would be that surprising.

The market has been in a rut for the past seven years -- following a boom that was financed by excessive risk-taking and an unhealthy dose of complacency -- with low interest rates largely failing to create a last recovery.

Until now. And even then it isn’t clear whether anything that we are seeing is sustainable.

By my calculations, what was once a property overhang has now transformed into a housing shortage. The numbers themselves are staggering and suggest that residential construction needs another boom simply to balance the ledger.

Using trend figures, housing starts have doubled from their trough but remain almost 44 per cent below their November 2005 peak. This level of housing construction was last considered normal at the beginning of Bill Clinton’s presidency.

Recent figures, however, have been more promising. Building permits, which are an important leading indicator for housing starts and construction, have increased by 18.4 per cent over the past year on a trend basis. This implies that construction growth will continue to rise over the next six-to-12 months.

This has directly translated into high-quality high-income jobs across the construction sector. Construction jobs have accounted for almost 8 per cent of new jobs created over the past year, which compares favourably with its 4½ per cent share of total payrolls.

House price growth had, until recently, provided some impetus for property developers to get their act together. According to the Case-Shiller repeat sales index, house prices have increased by 5 per cent over the past year but have eased slightly in each of the past three months.

A housing shortage suggests that price growth will pick up in the near term, supporting greater development. It’s at this point that it’s worth putting the housing downturn in some perspective. Property remains fairly cheap by historical standards -- adjusted for inflation price are almost 27 per cent below their peak -- and shouldn’t pose an issue for buyers in the near term.

A final indicator worth considering is home sales, which are a useful proxy for demand. It provides an indication of the type of price pressures that may be occurring across the US housing market. Property transactions can also be a useful indicator of housing mobility and economic dynamism.

The US economy isn’t as dynamic as it was pre-crisis -- no surprises there -- but it is improving. Existing home sales rose by 10.3 per cent over the year to July and are now at their highest level since February 2006.

New home sales -- the more important indicator of economic activity -- have surged by almost 26 per cent over the past year. That’s great news for retail spending as new home makers purchase furniture and other goods and services.

Collectively the data suggest that the housing market continues to recover at a gradual rate. But with residential construction well below its peak, there is considerable upside to housing activity. Quite conceivably the US economy will be dominated by the housing and household sectors over the next few years -- though hopefully not with the irrational exuberance that created the global financial crisis.

A lot will depend on when the Federal Reserve decides to raise rates. Hike too soon -- and too quickly -- and it risks undermining recent progress. But given recent market turbulence and subdued inflation, it appears likely that this risk won’t eventuate as the bank waits until next year.

Read more: http://www.businessspectator.com.au/article/2015/8/26/property/us-housing-recovery-gathers-pace
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stubby
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So there's a looming property shortage--but only so long as the Fed keeps interest rates at zero.

:lol :lol :lol
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DragonGM
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It is foolish to thing of the US as a single property market. There are some states and metro areas that have shortages and are experiencing price growth, but there are many cities across the US still have loads of distressed properties (on and off market) and how prices will remain subdued in those areas for years to come.
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Bardon
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Hey Dragon which areas are you in and how are they looking?
Edited by Bardon, 29 Aug 2015, 12:40 AM.
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DragonGM
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I'm in Dallas, KCMo area and Memphis.

The capital growth in Dallas is phenomenal albeit from a very low and stable base. In the last few months, good Dallas properties have been selling within a few weeks of hitting the market. But understand this. Real Estate activity happens between May and August when everyone is between school years. It will naturally slow down in September and almost die between November and March (winter). Generally budget on an 8% discount when buying US property in winter.

Capital growth in KCMo is small and Memphis is non-existent. In 90% of the midwest, you will be able to pick up real estate in 3 years time for similar prices that you can today.

All those markets beat Australia hands down in terms of purchase price and rental returns which are the fundamental reasons to invest as a landlord.
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Bardon
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Interesting thanks for sharing and good luck with it.

I used to own property in the US and actually had one in the Fort Worth area, Texas always was a steady and consistent performer even in the heady days it didn't join the party.

Where is KCMo?
Edited by Bardon, 29 Aug 2015, 06:26 PM.
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