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

More Good News for the UK Housing Market?

If ever you needed conclusive proof that the UK housing market is rigged in order to transfer wealth from the young to the old, then please read this from Barratt Developments statement this morning...

Today we are also announcing a tie-up with Hitachi Capital (UK) PLC that will allow parents to borrow money to help their children onto the property ladder.  The product is unique in the market and is specifically designed to address current mortgage restrictions on loan to value.

In other words, we've given up focusing on getting young people into debt in order to prop up UK house prices. Instead, let's cut out the middle man and just get the parents directly into debt instead.

Meanwhile, in the six months to December, their completions were down to 4,832 from 5,053 last year. However, the average selling price was up 6% to £176k. As for the growth outlook...

Mortgage lending remains at unusually low levels and we view this restricted availability of mortgage finance as continuing to be the key constraint on market growth in the near term.

So much for the restructuring in the banking sector.

Although, one thing that has gone back to normal is that Lloyds CEO Eric Daniels looks set for a £1m bonus, whilst Stephen Hester has £2.5m lined up. Meanwhile, Bob Diamond thinks its time for the banks to stop apologising for the credit crunch.

Aside from the moral issues, the banking sector underperformed benchmark indices in 2010.


Conclusion

Prices up, supply growth slowing, the banking sector not lending money and now, parents are having to borrow money to pay for their parents houses. Meanwhile, the banking sector looks set to award itself £7bn in bonuses-of which Savile's estimates 1.6bn will go into the London housing market- after having seen increases in their salary in 2010 to counter weight the tax last year.

When will this madness end?