While it is true that ‘all real estate is local’ it is also helpful to understand the larger picture and be mindful of how the real estate industry is performing overall – and for the purposes of this article, specifically the U.S. residential real estate market.
Nationally, March 2012 Housing Starts performed below analysts’ expectations. However this data should also be reviewed from a larger, more historical perspective that sheds a more positive light.
• March 2012 housing starts were 37% higher than their all-time low in 2009
• March 2012 housing starts were 10% higher than one year ago
Now look at the statistics for March 2012 residential Building Permits, which performed above analysts’ expectations.
• March 2012 building permits were 46% higher than their low in 2009
• March 2012 building permits were 30% higher than one year ago.
Building permits come before housing starts, and they track each other tightly over time. These numbers indicate a positive direction toward overall continuing housing market recovery. Even though activity is still at very low levels by historical standards.
In following a number of economic reports and blogs, one economist’s viewpoint was that “We are in the midst of an important inflection point in which home prices are no longer uniformly declining but in some areas home prices are now rising. Focusing on where housing prices were several months ago is missing the larger picture, which is that we have seen the worst of the housing debacle and the future is looking brighter. Obsessing over the historically 700K pace of housing starts is to miss the more important fact that housing starts are up 35% in the past year.”
Do investors agree that the residential real estate market is improving? Well, homebuilders’ stocks are up 160% from their recession lows; and REITS have returned 240% since the market bottomed in early March 2009, about double the 123% total return on the S&P 500.
Housing prices are still very affordable and mortgage interest rates continue to be attractive. The marketplace continues to work through excess housing inventory. While the overall picture is still one of recovery – it now looks like a recovery with a brighter future.
Andy Warren is President of Maracay Homes, the Arizona subsidiary of the Weyerhaeuser Real Estate Company. He serves on the Board of Directors for the Homebuilders Association of Central Arizona; the Board of Directors and as an Executive Committee member with the Greater Phoenix Economic Council. He is also an active member of the Urban Land Institute.