Last updated: November 19, 2012 6:25 pm

US homebuilder confidence hits 6-year high

Confidence among US housebuilders jumped in November to a six-year high, while sales of previously owned homes rose in October, indicating that the housing market has decisively turned the corner.

The National Association of Home Builders/Wells Fargo index of builder confidence increased to 46, its highest level since May 2006, from 41 in October.

The speed of recovery in the housing sector is crucial to the US economy’s ability to shake off the slowdown in emerging markets and the potential effects of the fiscal cliff.

After the five weakest years in its postwar history, the housing sector is starting to regain some vigour against a backdrop of record-low mortgage rates, a bottoming out of house prices and supply shortages in some cities.

But strict mortgage requirements are continuing to hold the market back and it is not clear whether the current recovery will accelerate.

“Residential construction activity is nowhere near the levels it was during the boom years, and it won’t return there for years. But at least the very worst is over for homebuilders,” said Teunis Brosens, economist at ING.

The index is based on a survey in which housebuilders are asked to rate the general economy and housing market conditions. Readings below 50 mean more respondents said conditions were poor.

Separately, existing home sales rose 2.1 per cent last month to an annual rate of 4.79m units, the National Association of Realtors said on Monday. This beat September’s downwardly revised 4.69m level and came ahead of expectations of a 4.7m rate.

Institutional investors snap up rental housing

by Anjli Raval

Institutional investors such as private equity groups have poured hundreds of millions of dollars into US housing over the past year, hoping to cash in on the country’s shift towards renting following the financial crisis.

Blackstone Group and others have snatched up homes at depressed prices, but rather than buying to renovate and sell on, these investors seek to take advantage of the tough financing requirements and uncertainty surrounding the labour market that are still compelling many Americans to rent rather than buy.

Blackstone is the single largest investor of single family home rentals, having spent upward of $1bn this year on more than 6,500 foreclosed houses in eight metropolitan areas. Other private equity groups such as Carrington Capital Management, Colony Capital and Och-Ziff Capital are looking to do the same.

Oliver Chang, former head of US housing strategy at Morgan Stanley, who launched asset manager Sylvan Road Capital in August to invest in distressed single-family homes, said: “About $5bn-$7bn has been raised by institutional investors and $1bn-$2bn has been deployed. But relative to the size of the opportunity this is microscopic. The single-family home rental market consists of 20m units worth on average $200,000. Even if you say each home is worth $150,000, that’s a $3tn market.

“Moreover it is likely there are 5m-8m single family homes that are sold in some form of distress in the next five to seven years so there is a potential $1.2tn opportunity in the distressed market alone. We are very, very early in the game,” he added.

Analysts say early entrants to the sector have achieved gross yields of between 8 per cent and 12 per cent, which is attractive for investors who have sought alternatives to lower yielding US Treasuries and investment grade debt.

But Lawrence Yun, NAR chief economist, said markets would probably see some impact from superstorm Sandy, which battered the US east coast at the end of October.

“Home sales continue to trend up and most October transactions were completed by the time the storm hit, but the growing demand with limited inventory is pressuring home prices in much of the country,” he said. “We expect an impact on northeastern home sales in the coming months from a pause and delays in storm-impacted regions.”

The national median existing home price was $178,600 last month, up 11.1 per cent from October 2011 as fewer people sold their homes under distressed conditions over the course of the year.

“Reports of rising prices, coupled with very low nominal mortgage rates, appear to be giving people the confidence to come back into the market without fear of immediate capital loss,” said Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors.

Distressed home sales – foreclosures and those sold at steep discounts – accounted for 24 per cent of October sales, unchanged from the previous month, but below the 28 per cent seen in the same month a year ago.

Total housing inventory at the end of October fell 1.4 per cent, to 2.14m existing homes available for sale, representing a supply at the current sales pace of 5.4 months – the lowest since February 2006 – from 5.6 months in September.

However, Ben Bernanke, chairman of the US Federal Reserve, said last week the US housing recovery still had a long way to go. The central bank and the US government have encouraged private sector participation to spur the country’s housing market recovery by clearing the glut of foreclosed homes.

Purchasers classified as investors accounted for 20 per cent of all home sales transactions in October, above the level recorded in recent months.

Home prices that are on average more than 30 per cent below their peak and an increasing share of the population seeking family homes in the rental sector, which is driving up rents, have piqued institutional investors’ interest.

Used to buying up office buildings, shopping centres and other big properties, they are now looking to professionalise the single-family home rental market dominated by “mom and pop” investors.

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