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Dr. Charles Lieberman serves as chief investment officer for Advisors Capital Management L.L.C., a money management and investment advisory firm, servicing financial advisors and private clients throughout the country. Dr. Lieberman has overall responsibility for managing its three primary types... More
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  • Housing Has Bottomed 1 comment
    Jul 27, 2009 10:19 AM | about stocks: HD, LOW, USG, MLI, NVR
    The latest report from the Census Department reinforces my judgment that the housing market has bottomed and will be a significant contributor to economic growth over the next few years, beginning in the third quarter of 2009.

    From a low of 329,000 new homes sales at an annual rate in January, sales have increased to 384,000 in June.  That 's a rise of 16.7% in less than half a year, a sizeable rebound.

    Even more striking is the behavior of housing inventories, which are often misread by observors.  June was the 28th consecutive month in which new home inventories declined.  Unsold new home inventories peaked at almost 600,000 units.  Now, they are just 281,000 units, which is about as low as they have been in the last 40 years.  Since the U.S. population has grown by about 50% over that period, the level of unsold inventories is now very low relative to the size of the population.  Much is made over the stubbornly high level of inventories as measured by the month's supply.  Sales were falling during much of the last two years, so the month's supply, which is inventories divided by the selling rate, remained quite elevated.  But it only takes a small rise in sales at a time inventories are falling to make a huge impact in the month's supply.  That occurred very visibly this month.  With sales higher and inventory down, the month's supply fell from 10.2 to 8.8 in a single month!  That's a major reduction in the gap towards the 6 month level that is considered normal.

    Keep in mind that the unsold inventory is not evenly distributed across the United States.  We know that there are significant unsold supplies of housing in four areas: the Inland Empire region of California, southern Florida, Las Vegas and Phoenix.  With overall inventories now so low, it is a safe bet that inventories are very lean in much of the rest of the country.  So, expect prices to rebound in much of the country in the coming months.  And population growth will continue to absorb what supplies of housing remain in the market.  Therefore, new home construction should continue to rise and even accelerate once growth resumes in the coming months.

    Disclosures:  we own various housing and building oriented equities in client portfolios and our personal accounts, including HD, LOW, USG, MLI, and NVR.

    Themes: Housing, Macro Stocks: HD, LOW, USG, MLI, NVR
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This post has 1 comment:

  •  
    Thanks for this post. You make some good points in balancing out some of the negativity elsewhere.

    I'd be interested to see, however, the breakdown in at least one of the trends cited, to wit, the increase in population. I've read elsewhere that the U.S. birthrate is actually below the break even point of 2.1 children per couple. Supposedly any increases are due to immigration and the increasing life span of our existing residents.

    I'm guessing that there won't be a large number of our older citizens who will be purchasing homes that don't already have one. Moving from one to another won't be taking any housing off the market, though I suppose if there were a lot with plenty of spare capital perhaps they might be buying some of the new homes. I don't have any facts or figures, but intuitively it would seem, however, that as a group they would be more likely to be downsizing and possibly moving out of homes altogether, either moving in with children, or to assisted living or nursing homes, or perhaps having children move in with them, particularly given the current job market.

    Similarly, immigrants wouldn't seem to be a demographic likely to be purchasing a lot of new homes.

    Zero Hedge has a page, "The End Of The End Of The Recession?" www.zerohedge.com/arti... that has a graphic showing a steadily rising average square feet per home adjacent to another showing a steadily decreasing number of persons per household on page 9 of that report.

    That too would seem to indicate a significant amount of spare capacity for children to stay with their parents longer or grandparents to move in with their children to cut expenses etc., particularly given the current job market, the number of foreclosures, and the expected increase in foreclosures for the Alt-A loans coming up etc.

    But as you say, the market is so slow now that an upturn could turn things around fairly quickly.
    Jul 27 01:51 PM | Link | Reply
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