What to expect from the housing market

2012 has been good to the US Housing Market. In most places home prices are up, demand is up, money is super cheap, and transaction volume is up. Banks are unloading their backlog at steady but not disruptive pace. Not surprising with the improving market conditions, new delinquencies are declining rapidly. The press and traditional housing market data folks have caught on.

The biggest negative one can say about today’s housing market is that inventory is super low. Our Market Action Index, which measures demand indicators relative to active inventory (supply) to an at-a-glance answer to “How’s the market?” has turned into “Seller’s Market” territory for the first time in years in many markets.

On the downside, credit is still tight for people with bad credit. That limits the buyer pool, but I can’t say that’s a bad thing – for the long term health of the housing market. There’s a reason for lending standards – ignore them at your own peril.

So with that as a backdrop, what should we expect for the rest of 2012? Do we dare call it a “recovery”? Here’s what you need to know:

  1. Home prices across the US are already up 10% year-to-date. You’re going to see five more months of “Up” headlinesbefore the next cycle of home price declines make their way into the news.
  2. Note that our earliest leading indicators – the data that leads 6 or so month out, have plateaued and are showing the end-of-year declines. Nothing scary in this data yet. Most of the rest of the year is dominated by bullish headlines.
  3. In tandem with home prices, rents are climbing. I’ve described this virtuous cycle previously.Rents and home prices US 2012 Year to date rents (apartments and single family homes) and home prices (for just single family homes in this line) in 2012. Y axes are not zero scaled.
  4. As I mentioned last week, the banks will sell into market strength, but not so much as to weaken prices in the face of these other dynamics.
  5. Operation Twist continues and rates stay low. It’s difficult to tease from the data precisely how muchimpact the stoopid-low interest rates have on home purchases. But you can guess it’s big. The Fed is aggressively supporting housing with low-rate policy. Doesn’t look like this policy changes any time soon.
  6. All of these factors combine to make real estate investing a hot market for the rest of the year. Lots of cash that has been sitting on the sidelines is now chasing a few properties with cheap financing and strong and improving yield. These are the makings of a bull market.

So there you have it. That’s the second half of 2012. Amaze your friends with your prescience.

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