After years of housing market decline that has weakened the economy and depressed consumer sentiment, a number of analyses are strongly suggesting that a turnaround in the beaten sector may finally be at hand.
Indeed, the market seems to be adding its endorsement to these analyses, with the SPDR S&P Homebuilders ETF (XHB) up 23% in the past month. (Even with the recent surge, the index is down more than 50% over the past five years.)
In a sweeping report titled “Housing: A Time to Buy,” JPMorgan Asset Management analysts David Kelly and David Lebovitz argue that trends in supply, demand and inventories all point to rising home prices. The two analysts offer lots of data that show how extreme the changes in the housing market have been in recent years. Their conclusion is shared by their counterpart, Citi analyst Joshua Levin (see more on Levin’s research on the next page).
Take housing starts, for example: The best month in the past years of housing crisis resulted in just half the average level of building activity over five decades. Kelly and Lebovitz present the data as follows: “In almost 50 years, from January 1959 to September 2008, the lowest annualized rate of housing starts recorded for any month was 798,000, and the average rate was more than 1.5 million units. Since January 2009, the highest rate recorded for any month has been 687,000, and the average rate has been just 575,000.”
Other stark findings include the fact that the value of home equity today totals less than half the level reached in 2006 –$6.2 trillion compared to $13.5 trillion five years ago. And the effect of the housing bust has been profound in that the fall in construction employment alone accounts for 30% of U.S. job losses in a sector that accounted for no more than 5.7% of U.S. jobs at its peak. All these and many more statistics account for today’s depressed consumer sentiment, whose current index value of 57.5 is nearly 30 points below its average of the past 40 years.