Home Sweet Recovery

Is the housing sector recovering?

One of the most frustrating aspects of this recovery has been the behavior of housing. Because the financial crisis was primarily caused making and securitizing subprime mortgages, the housing sector overshot and collapsed. This created an inventory overhang in single family homes, and millions of folks in the home building and real estate industry were put out of work.

So any recovery in new home sales is especially important. After all, it’s home construction that adds the most to employment. And the latest figures continue to be encouraging. After peaking in 2005 at an annual rate of almost 1.4 million, new home sales fell 80% over the next five years to a rate of 300 thousand per year. But it clearly bottomed in 2010 and 2011, and is now on an upswing. The latest data show that people are buying an average of 350 thousand homes a year, an increase of about 20% from a year ago. And the inventory of new homes is quite reasonable, at about 4.9 months of current sales. By contrast, that figure stood at 12 months supply in early 2009.

Of course, these figures can be and are revised when the Commerce Department gets better data. But those revisions seem to be improving as well. In 2006, every time the data was revised, it was revised downwards—an indicator that things were getting worse. Now every time new figures are announced, the old figures have been revised upwards.

Of course, we’re far from the peak we saw in the heady days of ’05 and ’06. But a recovery is based not on the level of sales, but on the change. It seems clear from the data that home construction is finally recovering. If so, the economy may finally be heading up. And just in time.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-09T15:41:18+00:00 July 27th, 2012|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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