US housing activity appears to have bottomed, and recent data suggests that housing activity in finally in a recovery phase – albeit still a modest and tentative recovery. Using a “weight of evidence” approach, we expect this modest improvement in housing activity to continue (see discussion below):
Analysing a wide range of US housing related data (see charts attached) we can draw the following conclusions:
US housing starts, including housing permits, appear to have bottomed and have started to rise; albeit off an extremely low base. In particular, the building of multi-family homes (which are really apartment blocks) have risen very noticeably in recent months This primarily reflects the surge in demand for rentals – especially smaller, more affordable apartments. The sharp rise in rentals is confirmed by the US inflation data.
Existing home sales appear to have bottomed, while new home sales have stabilised and are starting to rise – also at very low levels
There has been little to no improvement in construction employment during the past year – up a total of only 416 jobs.
Housing activity is finally making a positive contribution to US GDP growth, after being a very significant drain on the economy. As a national accounts level, housing activity has recorded positive growth in each of the past four quarters.
The home vacancy rate has continued to ease, although still very high by historical standards; and the months of supply of existing homes has generally fallen.
The “traffic of prospective” home buyers (as surveyed by Wells Fargo) has rising strongly since November 2011 and is considered a forward looking component of the housing market
Housing affordability is off its record levels, but should still provide and an encouragement for home buyers
Crucially, house prices have started to rise. According to the Case-Shiller house price index, home prices have increased in each of the past four months, rising by a total of 2.6%. While this is extremely modest in the context of the 30% decline during the global financial market crisis, it is a very welcome change in direction. A sustained rise in house prices would be very beneficial to the US economy – especially consumer activity.
The next crucial step in the recovery process is a stronger pick-up in home sales, a further run-down of vacancy levels and a more convincing rise in house prices. A recovery in the housing market would help to confirm the sustainability of the current US economic recovery.
*Kevin Lings is an economist at Stanlib Source: Moneyweb
