As 2012 started drawing to a close evidence mounted that the US recovery was well under-way and as the doubters were continually silenced month after month it seemed to be unstoppable.
A rolling rock collects no moss, but the American rock does seem to be slowing into this year. But it is still way too early to say that the doom-sayers have now been proven right. For a start the American housing market is far too big to judge as a whole, and when judged as a sum of its parts the recovery is still alive and well.
Not only that, if you look beyond the national headlines there are hundreds of potential investment opportunities. Indeed, in some areas investors have already driven prices up so as to have caught up and passed the point of opportunity, but for each of those areas there are two just starting to clamber their way back into the light and this is where the smart money is shining its green light.
Low Supply and New and Worsening Problem
The latest news is that low supply is becoming a new and increasingly big problem for the market. The latest figures on existing home sales in the US shows sales almost flattened in January after some impressive growth last year. In fact, the growth of 0.4% to a seasonally adjusted annual rate of 4.92 million homes would have been less still had December's total not been revised downwards to 4.90 million. Never the less this is still 9.1% above the 4.51 million unit-pace set in January 2012. As it is from the National Association of Realtors some sceptical people could suggest that they only revised December's figure down in order to eke some growth out of it – sceptical folk mind.
According to the NAR the tightening of inventory continues to become a problem. US construction – as the yanks say – went into the toilet when the US housing market ran into crisis. The US housing crisis was severe enough to be a precursor to global financial Armageddon, so of course house-builders headed for the hills. Even if they wanted to build they couldn't get financing. And of course, the US housing recovery did kind of blind-side most people and as a result the historically low stock is being absorbed way too fast.
Total housing inventory at the end of January fell 4.9 percent to 1.74 million existing homes available for sale, which represents a 4.2-month supply at the current sales pace, down from 4.5 months in December, and is the lowest housing supply since April 2005 when it was also 4.2 months.
According to Lawrence Yun, NAR chief economist, tight inventory is a major factor in the market. "Buyer traffic is continuing to pick up, while seller traffic is holding steady," he said. "In fact, buyer traffic is 40 percent above a year ago, so there is plenty of demand but insufficient inventory to improve sales more strongly. We've transitioned into a seller's market in much of the country."
If the Wind Changes...
But there is a factor in this that needs to be considered. It is common knowledge that throughout the recent recovery investors have been the predominant buyers in the US market. For now the rental boom is keeping those investors happily earning rental income, but construction of multi-family housing did pick up greatly last year and this could eat into the rental boom. In some places this could lead to some landlords looking to capitalise on the capital growth they have undoubtedly seen since buying at rock-bottom and watching the foreclosures slowly dry to a trickle leaving only open-market prices in their wake.
This could be a good or a bad thing depending on numbers, and like everything else in property, location. In areas where inventory is tightest a few more people looking to sell surely wouldn't be a bad thing, especially if for example, tenants start favouring apartments in the new multi-family housing developments (apartment blocks), and investors start selling houses as a result. This could balance supply nicely and strengthen the recovery. But balance is the keyword and it is a fine balance, too many sellers could easily do the opposite to the recovery and if investors get cagey and start selling in the kind of numbers as they were buying in last year it will quickly become a buyers market again and no one wants to see a return of strategic defaulting now do they?
Should Investors Still Be Looking at the US?
But what do readers of IPIN Global really want to know about the recovery? Is it a good time to invest in the US recovery and the answer is what was intimated at the top of the article. Now is a good time to find opportunities in America.
Regardless of what you believe about the housing recovery, the economy has been recovering since 2009/10 and this recovery has strengthened a great deal during this time including employment growth, although it has had its shaky periods. Right now there are recovering areas with desperate shortages of housing to meet demand and prices at a 5-10 year low. It is entirely possible that there will be another financial crisis of this magnitude, but it is also possible there won't and even if there is it probably won't be in this lifetime. There may never be a chance to get into the American housing market at the current low prices.
The Floridian Anomaly
Speaking of low prices you have the anomaly that is Florida. If Florida and Miami which it is home to haven't led the American housing market out of crisis, they have certainly led the media-storm with scintillating sales and price growth as investors finally started doing what market-bears had so long predicted; buying up foreclosures en-mass. Miami sales and prices have grown in double digits almost constantly month-in-month out since the middle of last year. Across America as it caught up with this positivity sales rose, but there is a difference. In most places the sales have absorbed a large percentage of foreclosure property availability, in Florida foreclosures are still amassing according to the latest reports.
This is the anomaly. Above it was suggested that as the foreclosure stock was absorbed and more new housing came online, that investors may see it as a time to sell and lock in the huge gains they have made from buying distressed and selling on the open-market, and who could blame them. In that respect the Florida recovery becomes safer, but on the other hand it is entirely possible that the rental market could lose its appeal before the foreclosure stock is absorbed, which would be far from ideal.
This is why when it comes to America (and pretty much everywhere) the national statistics are only a starting point. The national statistics have told us that the American market has dragged itself out of free-fall and while some places will get sucked back in before the recovery can be completely put into the past tense, others are set to continue going from strength to strength. Investors need to get out there on the hunt, looking at regional statistics, not necessarily for areas that have just started to recover, but also for areas that may still be on the decline, but where the picture has been improving recently, make a short-list and then research on a per-deal basis.
- Tuesday 26 February 2013