Blue Point Trading Market View – June 06, 2013
Housing 2013 – one bright spot in the US tepid recovery. The thumbnail chart shows the index levels for the U.S. National Home Price Index, as well as its annual returns (price increases). As of the first quarter of 2013, average home prices across the United States are back at their mid-2003 levels – though still off 28% from the bubble highs of 2006. At the end of the first quarter of 2013, the National Index was up 1.2% over the fourth quarter of 2012 and 10.2% above the first quarter of 2012. The recent jump in house prices, clearly indicates that the US housing market is on the mend.
Near record-low mortgage rates and improving job opportunities are drawing buyers into a market that remains a bright spot for the expansion. The increase in demand is stretching beyond builders and giving a boost to lenders, brokers and suppliers of construction materials. Housing starts in the US are near a five-year high. Builders began work on 780,000 homes in 2012, a 28 percent increase from the prior year and the third straight annual advance. Even with the gains, starts remain short of the 2.1 million reached in 2005 at the peak of the boom, which was a three-decade high. Real estate agents saw the biggest surge in commissions last month for any April in data going back to 1996. The supply of homes priced at $100,000 or less fell to a 4.5 months low, indicating supply is getting tighter and prices could go higher. All very good news for the US housing market. But where do we go from here?
First of all, this good US housing data, is one the few bright spots in the US economy that can support the current 2 to 2.5% US GDP growth rates. Just think if we didn’t have this good news? It also means that no crash or major sell off is imminent in the markets, as this trend in the housing market looks to continue for at least another 18 months. The points that will keep this recovery from over heating will be:
- Employment and wage growth – will be stagnant, due to the globalization trends of offshoring that will continue.
- Mortgage rates – are climbing, due to potential Fed tighter monetary policies – recently mortgage rates have breached the 4% mark.
- Investors leaving the market – that were all cash buyers in the market, due to distress sales, that may disappear as the good deals begin to evaporate.
- Family composition – families are getting smaller and more generational families are living together, thereby creating less demand for new home formations.
- Demographics – the baby boomers will be dying off and immigration reform may actually slow immigration. In addition, the US is becoming a less attractive immigrant destination in recent years. For example, Mexican immigration has tapered off. All this creating less demand.
- Shadow inventory – as prices rise, people trapped in under water mortgages, will use the opportunity to sell, creating more supply.
So is it a good time to buy a house? The best times may have passed, but if you don’t move now, in the next 6 to 18 months, the time will have passed and you could get trapped once again at a mini bubble top, as the global macro economic trends and busines cycles will start to work against you.
Daily Market View: (click here for the video)