Thursday, April 11, 2013

Bonddad: Still Bullish on Housing

The housing market continues to look like its in a rebound.  Let's start this analysis by looking at the existing home sales market.  All graphs in this analysis are provided by the blog Calculated Risk -- which still has the best housing graphs on the web.

First, after the crash, sales fell to the 4 million annual units level in late 2009 -- the level of homes sales that we saw in the 1990s.  We also see the effect of the new home buyer tax credit and its expiration in 2010.  However, since mid-2011 we see a continual rise in the sale of existing homes.  The pace is far below the level we saw at the peak of the bubble (which is very good as it indicates we're nowhere near a bubble level).  However, the rise is very clear.

In addition, the inventory level has returned to much better and healthier levels seen in the early 2000s.

Let's turn to the new home sales market.

New homes sales cratered after the crash, falling to multi-decade lows.  However, like the rise in existing home sales, we see an increase starting in mid-2011 that continues to move higher.  Granted these are still low levels, but the overall trend is unmistakable.

More importantly, we have low levels of inventory, which is very important as this is leading increased building and increased prices.

The year over year percentage change in the Case Shiller index has been increasing since early 2012.  This is the result of the increased sales pace and decreased inventory.

In addition, we now have a clear positive trend in the building market.

The top chart shows total building permits and the bottom chart shows housing starts (which are the natural result of building permits).  Notice that both cratered after the housing bust,  but that both have rebounded and are each now printing  a solid uptick.

Finally, the homebuilding sector of the stock market has been in a rally since late 2011.

The signs are unmistakable at this point: housing is in the middle of a recovery.