Friday, January 13, 2012

Five reasons 2012 will be the start of US housing recovery

As we await the fully anticipated downgrade of France as well as Austria and others in the eurozone before the long weekend, it is difficult to think positive thoughts about the US housing market. But at the risk of getting bombarded with more angry emails, here are five reasons 2012 will be the year the US housing market will start recovering.

1. Housing inventory levels have tightened considerably:

A. Existing homes for sale number is near the long-term average after the revision.

Single Family home sales (millions, annualized, source: Capital Economics)

B. The number of unsold homes (new and existing) as a fraction of the population in the US is at a 7-year low.  As household formation picks up, so will the demand for homes.

Total number of unsold homes as % of population (Bloomberg)

C. Housing starts continue to stay subdued with only limited inventory added.

Single family housing starts (Bloomberg)

2. Home sales are stabilizing in spite of QE2 ending last summer.

Existing home sales (Bloomberg)
3. Downpayment required on new mortgages is back down to 20% versus around 25% in 2010.
Loan-to-value on new mortgages (Capital Economics)

4. New mortgage payment affordability is now at best levels in recent history.

New mortgage monthly payment as % of median income (Capital Economics)
5. The market is telling us recovery may already be under way.  The chart below shows the share price history of Hovnanian Enterprises, a company that builds single-family homes. The market is anticipating improved demand for homes.

HOV share price vs SP500

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