Housing Recovery Finds Foundation
I would say the single-family homes are cheap now, too.... If I had a way of buying a couple hundred thousand single-family homes and had a way of managing -- the management is enormous, is really the problem because they're one by one; they're not like apartment houses -- I would load up on them, and I would take mortgages out at very, very low rates. But if anybody is thinking about buying a home, five years ago they couldn't buy them fast enough because they thought they were going to go up, and now they don't buy them because they think they're going to go down. And interest rates are far lower. It's a way, in effect, to short the dollar because you can take a 30-year mortgage, and if it turns out your interest rate is too high, next week you refinance lower. And if it turns out it's too low, the other guy's stuck with it for 30 years. So it's a very attractive asset class now.
-- Warren Buffett, CNBC's " Squawk Box "
I have been planning to discuss the brighter outlook for the U.S. housing market for several weeks.
Warren Buffett's remarks (above) on "Squawk Box" have pushed me to expand on that optimistic scenario this morning.
Recent Housing Statistics Are Improving
On Monday, the government reported that pending home sales in January (which historically have foreshadowed actual existing-home sales) rose by 2% vs. expectations of +1% and a reading of -1.9% in December). On a year-over-year basis, pending homes sales were up 10.3%. (Regionally, the South and Northeast experienced growth in January, while the Midwest and West showed declines.) January existing-home sales (previously released) were at the highest level since May 2010, and yesterday's pending home sales suggest more growth ahead.
Last week, January new-home sales came in at 321,000 -- expectations were 315,000 - for year-over-year growth of +3.5%. January's report was well above the August 2010 cyclical low of 278,000. Ironically, new-home sales are supply-constrained -- that is, the inventory of new homes stand at a record low of 151,000 units; the months' supply is near five months, which is the lowest level since 2006. By contrast, existing-home sales (unconstrained by low inventory and, thus, a better gauge of housing demand) are faring better than new-home sales. Year over year, new-home prices (pressured by burgeoning foreclosed properties) are down by nearly 9.5%, while other home prices are basically flat.
It is my expectation that both new- and existing-home prices (which suffered price declines in 2008-2011) face a better year ahead in 2012 and over the balance of the decade.