Monday, November 19, 2012

Housing market continues to improve

If I had to guess, I would say that a majority of people in the country still view the housing market in a negative light. They note the still-large overhang of foreclosed properties, the still-low rate of new housing starts, and the still-depressed level of housing prices in many parts of the country. But that is looking at the market from a static viewpoint; on the margin, there have been some very important improvements in the housing market over the past 18 months. It's hard for me to believe that these changes are ephemeral—they have all the makings of a clear turnaround that is underway and likely to continue.

The chart above shows the results of a monthly survey of home builders' perceptions of current single-family home sales and sales expectations for the next six months. Even though home builders' sentiment is still below 50—which signifies that somewhat more builders still view conditions as poor rather than good—the improvement in the index so far this year has been dramatic.

There may be lots of housing inventory "waiting in the wings," but currently the number of homes for sale is relatively small compared to the current rate of sales. Again, dramatic improvement on the margin.

The chart above shows the fraction of homes for sale that are vacant. While still somewhat high from an historical perspective, there has been a significant decline in the number of vacant homes for sale this year.

As this chart shows, the stocks of major home builders have increased significantly from their lows of October 2011—up 94%. Stocks are still depressed from their bubble highs of 2005, but the recovery from the lows has been dramatic.

UPDATE: October housing starts handily beat expectations. As the chart below shows, residential construction is unquestionably in the midst of a genuine recovery. Starts are up 65% since the end of 2010, and have soared by 42% in just the past year. In retrospect it's easy now to see that the housing construction began its recover sometime around the middle of last year. We are still in the early stages of the turnaround in the housing market, but it's for real.

1 comment:

Benjamin Cole said...

Dudes, go buy housing.

You can leverage, the tax code subsidizes your purchase, you can even live in it.

You can wait until the market is up and then sell.

If you lose, the bank takes only your equity back, not the size of the whole loss. (Non recourse loans).

Imagine being levered 5-1 in the stock market, but liable only for the loss of your equity.