Market Analysis

Housing Still Isn't Haunted

2006 is over.

2006 is over. The run of gains in US housing prices ended. Sales volumes fell, housing starts fell, and inventories went up.

Also in 2006: stocks posted healthy gains and the US and global economies advanced. These facts alone should be persuasive enough to see a downturn in the housing market won't necessarily sink stocks.

But the fear persists.

We do not foresee an impending implosion in real estate for 2007, and expect the most likely scenario to be a rebound—much like the United Kingdom and Australian markets of the last several years. In any case, real estate shouldn't adversely affect stocks in 2007.

In fact, it already looks like the housing market is rebounding. Here are a few facts to stew over:

  • Americans pulled nearly $500 billion of equity out of their homes in 2005 (a big number!). Yet, that year the appraised value of the 2005 US housing stock gained 12%, or $2 trillion. In other words, US homeowners only spent about 25% of the gains on their housing assets. Instead of the common fear that homeowners are using all their assets to do more purchasing…in effect they were net savers and their personal balance sheets improved.
  • Single family average home prices fell 3.5% in 2006 – a far cry from an implosion.
  • 2006 median sale prices of existing homes actually gained from $219,600 to $222,600.
  • US Housing inventories are lower today than six months ago.
  • REIT stocks jumped nearly 30% this year.
  • Even if ARM (adjusted rate mortgage) loans come due soon, many can still refinance them today at very low relative rates. And anyway, ARM loans are a very small percentage of overall outstanding mortgages.
  • Inventories of new homes fell for a fourth month in a row in November.
  • Sales of existing homes rose four consecutive months through November.
  • December mortgage applications were up by +8.3% from their October lows.
  • The S&P homebuilder index surged by +10.1% in the last two months of the year, compared to the +2.9% gain of the overall S&P 500. (In other words, the market is telling us things have probably stabilized.)

US Commercial Real Estate

  • Commercial real estate composes nearly half of all US real estate and made big gains in 2006
  • Vacancy rates for office space were 13.5% in q4 2006 - the lowest since the third quarter of 2001.
  • The estimated price paid for a square foot of office space was up 17.2% in 2006
  • Warehouse and industrial space rent jumped 8%; retail space and strip mall centers climbed 10%.

Sources: Forbes Magazine, Annaly Mortgage Management, Real Capital Analytics, SNL Financial, National Association of Realtors, Reis Inc.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.