U.S. Real Estate Market: A Possible Upside In 2012

by: Suman Chatterjee

Here are few facts to consider:

US housing prices are going to slide down till the first quarter end of 2012, even though there has been some improvement in the third quarter this year. That's bad news!
August Home Prices showed there has been a strong incline toward distressed sales, including short sales and real estate owned (REO) transactions, resulting in the year-over-year price decline by 4%.
Pending home sales have gone down quarter over quarter, in mixed regional performances, as reported in August. And real estate experts and economists believe that there will be around 1% improvement through till 2015. And that's definitely not good news.
Needless to say, over the last 3 months, Capstead Mortgage (NYSE:CMO) has fallen by 11%. Anworth Mortgage Asset Corp (NYSE:ANH) has fallen by 10%. And Chimera Investment Corp (NYSE:CIM) has fallen by around 18%. Are we going to see any improvement soon?
79 million Americans, around 26 percent of the total US population, fall within the Baby Boomers group. There are two cohorts of the Baby Boomer group: Young Baby Boomers (47-55 years old) and Older Baby Boomers (56-64 years old), and needless to say, the Baby Boomers can be considered a strongest reckoning force in the recovery of the US economy.
And recent surveys show that the Baby Boomers are all set for their retirement, and they would want to invest in some real property for annuity. And it is expected that the Younger Baby Boomers will be more active investors than the Older Baby Boomers. It must be understood that Younger Baby Boomers have an expanding family at this stage and thus, they would need bigger houses. So, it is very normal for them to move from a smaller home to a bigger home. That should spur some growth for the real estate market.
But what if the Older Baby Boomers start to sell their bigger homes and move into smaller homes? They are already hard on cash and liquidating their real assets seems to be the best possible move for them at the moment. So, things are just exchanging their places in the equilibrium, without any major change.
On top of that, in the first week of September, we heard about the Federal pressure on the REITs. The US regulation would either curtail the amount of leverage allowance or override the tax exemption provided to the REITs. For mortgage REITs mainly, this can be an awful move. Needless to say, Hatteras Financial Corp, (NYSE:HTS) Annaly Management (NYSE:NLY), American Capital Agency Corp (NASDAQ:AGNC) fell by a few percentages since September.
Mark G. Doutzour, chief economist at Texas A&M University's Real Estate Center, said he is very optimistic about the recovery of the US economy, and that it should start to boom somewhere after the 2012 election. He says the US is the best country to live in, corporations are making high profits and still nobody is going to hire anytime soon. Why? It is because of the stringent regulations on US companies and the low consumer confidence pervading throughout the country. He believes that the US is spring-loaded with potential, just needs a kickstart from an optimistic, original move from the Government.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.