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22 Apr 2015
US housing has all the ingredients for a more pronounced pickup in activity – DB
FXStreet (Barcelona) - Economists at Deutsche Bank, explain that although only slight improvement would be seen in US March existing home sales, the conditions are ripe for a material shift in housing activity.
Key Quotes
“we expect only slight improvement in March existing home sales (5.00M forecast vs. 4.88M previously) due to the recent modest uptick in pending home sales... Thursday’s new home sales (525k vs. 539k) report for March could be soft given the dearth of supply on the market.”
“While the housing recovery has been grindingly slow, there are several reasons why the sector may show a more pronounced recovery in the quarters ahead. For one, 30-year mortgage rates are roughly 60 basis points (bps) lower than they were at this time last year. This means affordability is improving.”
“In addition, banks continue to ease lending standards for mortgage credit. In fact, bank holdings of residential real estate loans expanded at a 3.9% annualized rate last quarter, the best performance since the three months ending January 2013 (+4.0%).”
“To be sure, mortgage lending standards remain tight relative to the mid-2000s, and for many, saving for a down payment is challenging.”
“However, the decline in energy prices over the past year means that consumers have been able to save roughly $100 billion in energy costs. Thus, while analysts may fret over how much of this energy windfall is being spent versus how much is being saved, an elevated savings rate now could be a positive for housing later on.”
“Case in point, since peaking at around 95% during the depths of the recession in 2009, the ratio of household debt to disposable income has declined to 76% as of Q4 2014—the lowest since 2002.“
“Keep in mind the economy has generated over 3.1 million jobs over the past 12 months and the unemployment rate is down over a percentage point. This may be one reason why household formation was up 1.4% year-over-year as of Q4 2014—the highest growth rate since Q3 2005 (1.7%). In short, the conditions are ripe for a material upshift in housing activity.”
Key Quotes
“we expect only slight improvement in March existing home sales (5.00M forecast vs. 4.88M previously) due to the recent modest uptick in pending home sales... Thursday’s new home sales (525k vs. 539k) report for March could be soft given the dearth of supply on the market.”
“While the housing recovery has been grindingly slow, there are several reasons why the sector may show a more pronounced recovery in the quarters ahead. For one, 30-year mortgage rates are roughly 60 basis points (bps) lower than they were at this time last year. This means affordability is improving.”
“In addition, banks continue to ease lending standards for mortgage credit. In fact, bank holdings of residential real estate loans expanded at a 3.9% annualized rate last quarter, the best performance since the three months ending January 2013 (+4.0%).”
“To be sure, mortgage lending standards remain tight relative to the mid-2000s, and for many, saving for a down payment is challenging.”
“However, the decline in energy prices over the past year means that consumers have been able to save roughly $100 billion in energy costs. Thus, while analysts may fret over how much of this energy windfall is being spent versus how much is being saved, an elevated savings rate now could be a positive for housing later on.”
“Case in point, since peaking at around 95% during the depths of the recession in 2009, the ratio of household debt to disposable income has declined to 76% as of Q4 2014—the lowest since 2002.“
“Keep in mind the economy has generated over 3.1 million jobs over the past 12 months and the unemployment rate is down over a percentage point. This may be one reason why household formation was up 1.4% year-over-year as of Q4 2014—the highest growth rate since Q3 2005 (1.7%). In short, the conditions are ripe for a material upshift in housing activity.”