Housing, a new business cycle shelter ?

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A couple of months ago, we already discovered some green shoots in the US economy with some cautious revival signs in the housing sector after 5 years of blood, sweat and tears. Today we see that more and more optimistic surveys point to hope on the good old brick coming to the rescue once again. What’s the state of play as far as US real estate concerned ?

When looking at home price evolution, affordability and finance cost, things have improved indeed. After a string of consecutive monthly price increases, the Case Shiller 20 home price index has recently gained quite some momentum and is now up more than 8% on a yearly basis. And 30y mortgage rates have hit all time lows over the past couple of months :



Single family housing starts are expected to rise 18% in 2013 and by another 26% in 2014. That’s not a small number although we have to admit that we are still far from exuberance levels from way back in 2006/7 (and may be that’s not so bad). Over the past 2 months, the construction sector added some 70,000 new jobs. And despite the disappointing overall payroll number released last week, construction jobs are still outpacing job growth across all sectors of the economy. The expectation would be that for 2013, construction would add 500,000 jobs and another 700,000 in 2014. But as the following chart shows, it only matches half of the loss of the overall level of construction employment dated from pre-crisis level :


Of course the stock market already took out some insurance and anticipated “more or less” to this housing revival. “More or less” is may be a euphemism because when we look at the market evolution and valuation right now, it seems the market has been quite bullish on bricks. The following graph depicts the evolution of the S&P15 home builder index (15 large construction related companies such as Toll Brothers etc). And we have the following result :


Since the start of 2012, this index has jumped from less than 200 to the current level of 483 which is not a bad return. As for valuation, the index now stands at current P/E of 28 which reminds us of levels which were not so healthy in the recent past. But, the jury apparently has decided that this is how it will be.

But it isn’t restricted to the US and low interest rates. Across the Pacific, we see even more ballistic trends re-appearing. It’s Asian madness once again, only this time not supported with preliminary green shoot numbers. In Japan, the Tokyo Real Estate Topix index is on the move, and how ! Coincidentally or not, the move was triggered in November last year. It could have something to do with central bank intentions but that we leave to the future. The following graphs depict the monthly evolution over the past 5 years (double up in 4 months time) and quarterly evolution since 1980 with latt…


Cet article a été rédigé par Econopolis

le 12 avril, 2013

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