"...all the evidence I see tells me real estate prices in the U.S. are now a bargain ... that we're at the bottom ... and that there will be a recovery in property prices, albeit slowly, over the next several years.The data is well thought-out and reasoned, but there are certain factors which lead me to be more cautious. One is the supposed "ghost supply" of houses owned by banks but not coming on the market as REO's yet. The rumor is that there are hundreds of thousands, if not millions, of homes waiting for a better time to come on the market, so banks don't loose as much on the deals.
"Amongst the evidence I see ...
#1. New home inventories are now at previous recession lows. This is not to say inventories of new homes can't fall lower. But as inventories fall, so does the supply of new homes, which is generally bullish for prices. Looked at another way, the bulk of the oversupply of new homes has largely been worked off.
#2. Existing home inventories have also fallen sharply. Although they have not plunged as low as one might expect from looking at this chart, they have not only peaked, but they have fallen to an area that should find support
"The inventory of new homes has fallen well below its 40-year average, to levels that have marked previous recession lows in inventories.
"Also note that due to foreclosures, short sales, and other workouts going on in the real estate market, existing home inventory data is likely to lag the bottom in real estate prices.
#3. Anecdotal evidence points to a pickup in demand. The Pending Home Sales Index, a leading indicator and a measure of home sales that will go to contract within two months, has risen for four months straight.
"Existing home sales have also been on the rise, increasing 6.2% since the start of the year. Meanwhile, the median sales price of existing homes has jumped almost 5% in the same period.
#4. Housing affordability has come back down to the CPI inflation trend line. I find this chart especially interesting. Courtesy of Investech Research, it's a picture of housing prices vs. inflation as defined by the (conservative) Consumer Price Index since 1980.
"The median family home price has collapsed back to the growth rate of inflation, per the CPI. Put another way, the median home price is back to inflation-adjusted levels, with the majority of the price deflation behind us.
"What's more, the National Association of Realtor's Housing Affordability Index is now in record territory, indicating that housing prices are now more affordable than they've been since this index was created in 1970.
#5. On an international basis, U.S. property prices are cheaper than they've been in at least 10 years. Consider the following: The U.S. median home price has fallen 21.3% - more than $56,000 - since its peak at $262,600 in March 2007.
"In terms of the international purchasing power of the dollar, which has declined precipitously, the median price of a single-family home has fallen more than 35% to levels last seen in 1998.
"That's due to the decline in the international purchasing power of the dollar since 2001, coupled with the decline in housing prices in dollar terms.
"In my view, the decline in the value of the dollar will become an important stabilizing factor in U.S. real estate prices. It means more foreign investors should soon be investing in U.S. property, bolstering demand and even pushing up prices.
The second concern is how unemployment will factor into any further foreclosures. Will the majority of homeowners remain in their homes over the next 6-12 months, and keep current in their mortgages? With the rise in Alt-A and prime mortgages heading to foreclosure, it's a possibility we may see more declines due to increased inventory. Will this have a big impact on the San Francisco real estate market? Keep an eye on the HR departments of the largest tech companies as a leading indicator.
We'll keep you posted on how things progress.
SOURCE: BLOGGING STOCKS
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