Can the U.S. Housing Rebound stand on its Own?
In our July 22, 2010 post entitled, “The Broader Implications of a Housing Rebound,” we questioned how much of the surge in existing home sales seen thus far in 2010 was solely attributable to the federal tax credit program. While the final answer has yet to be determined, initial feedback seems to be pointing to a significant level of attribution. Existing Home and Condo sales plummeted 27.2% from June to July, to an annualized 3.83 million rate, the lowest level in the last 10 years that the data has been tracked. Additionally, sales of new homes fell 12%. While much of the decline was due to the expiration of the buyer’s credit (which essentially had the effect of front loading sales in the previous months), the magnitude of the decline was a big surprise to many
This confirms our belief that many government programs may be able to temporarily influence markets over the short-term but often cannot re-ignite moribund demand over the long term. These housing reports also underscore the notion that consumers are still hurting, since real estate sales can largely be viewed as a function of current job prospects and consumer confidence. While it may be harder for weaker buyers to get financing these days, credit is certainly available to creditworthy borrowers and inexpensive leading Barron’s to comment in the recent edition of Barron’s Market Week that, “The last time mortgage rates were this low, Elvis was around.”
All of this equates to a definitive buyers market for U.S. residential real estate while real estate investment trust (REIT) strategies remain an asset class worthy of marginal consideration for many investment portfolios given that downside price risk is minimal, and distributions are often attractive, in our opinion.