US Housing Market Set for Subdued Recovery

The US housing market was at the epicentre of the financial crises so it is reasonable to assume that it needs to recover in order to confirm a full recovery. This is especially important as the 'wealth effect' of rising house price values has a direct correlation with US consumption demand. Ultimately, housing will recover as new household generation catches up with reducing inventory, but is 2011 the year when the housing market will definitively recover? Ultimately, the answer to this question will lie in a combination of inventory, affordability and employment.


Existing Home Sales Data

The latest existing homes data from the National Association of Realtors is out and I've incorporated them into this table

	2008	2009	Mar 2010	Jun 2010	Sep 2010	Dec 2010
Inventory (m)	3.7	3.28	3.63	3.89	4	3.56
Sales (yearly rate)	4.91	5.16	5.36	5.26	4.53	5.28
Months Supply	10.4	8.1	8.9	10.6	10.6	8.1
Av Price (k)	198.1	172.5	169.6	183	171.5	168.8

source: National Association of Realtors, Markets and Culture

As a rough guide, a 'normal' months supply data is 6 months, but this number can reduce dramatically given a pick up in sales.  I think a normal inventory could be around 3m. Transactions should improve given ongoing employment gains. However, prices appear to be weakening, even though, Robert Shiller doesn't believe they have gone far enough...



Frankly, I'm not convinced by the Case-Shiller 'Long-Term Trend', as the US economy has seen a marginal shift increase in home ownership.


Shadow Housing Inventory

Unfortunately, the inventory data is not the whole story. Their is a whole load of shadow inventory in the pipeline from banks and repossessions. Corelogic gave some estimates for how much this could be to August...

 

   and the future inventory looks like it will hold back housing...



The real key to understanding how much future shadow inventory will be to look at serious delinquency rates are faring. I've compared October 2010 delinquency rates with 2005, on single and multiple family serious delinquency rates.

• Single family rates at 4.52% vs. .77% in 2005
• Multiple family rates at .71% vs. .27% in 2005

Clearly there are more foreclosures in the pipeline. So for 2011, it looks like a subdued recovery in housing.





Source:

Corelogic Report

Fannie Mae Monthly Report

National Association of Realtors