U.S. housing related data continue to surprise on the upside, but we caution against extrapolating current trends.
T he NAHB home builder survey reported yesterday that home builders are becoming increasingly optimistic about the residential real estate market, based on “increasing demand for new homes as inventories of foreclosed and distressed properties begin to shrink in markets across the country”. Nonetheless, the NAHB index is still below 50, which means that there are still more builders that view conditions as “poor” rather than “good”.
Similarly, housing starts also beat expectations again in October, but construction is still weak relative to historic norms. While it is good news that the housing data is firming, investors should not expect more than a modest upside potential in this sector.
True, foreclosures are hitting the market at a slower pace than during the past few years, but the home-ownership rate continues to fall. New entrants will only trickle into the housing market because weak real income growth and credit constraints are ongoing headwinds.
Bottom Line: Residential real estate is likely to be “only” a modest positive contribution to GDP growth in 2013.