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US Housing: Don’t Call it a Bubble

I jumped on the US housing market recovery back in 2011.

Homebuilders had been locked in purgatory for more than five years. They overbuilt (massive understatement there, I know) during boom times. When housing demand fell off a cliff, they were forced to sit around and lick their wounds.

So they waited. Some even strategically bought land at a deep discount. And when homebuilders looked to be bottoming in late 2011, I turned bullish. The decision sparked a lot of hate mail. There’s no new housing boom… The bottom’s going to fall out again… How could I be so stupid?

Except it wasn’t a boom I was looking for – just a reversion to somewhat stable conditions. It’s supply and demand, knuckleheads. Way too much supply in 2005-2008. Prices dropped through the floor. You know the story.

 

Now you’re seeing what happens when building grinds to a halt for more than a half decade. Inventories are hitting lows not seen since the last century. Prices are up. Homes are selling faster. There just aren’t enough decent properties to go around. Rates remain ridiculously low. It’s a recipe for a rebound.

‘Across the country, the raw number of homes for sale is at its lowest level since 1999,’ according to the New York Times. ‘Investors large and small have also scooped up most of the backlog of foreclosures and short sales…’

Of course, rising home values means rising wealth. Homeowners that had been underwater are now able to come up for air. That can do wonders for the moods of consumers and investors – which have been intensely negative during this secular bear market. If your home isn’t sucking your net worth dry, you’re more likely to spend and invest.

Keep in mind, this is a recovery – a mean reversion. . You won’t see massive year-over-year price increases and the hysteria that was so common just seven or eight years ago.

Of course, no one bothered to tell that to the financial media hype machine:

 

Jeez…really?

Now is not the time for wild speculation on real estate.

Play homebuilders and related sectors instead. Many are relatively cheap and just starting to get their balance sheets back in order.

Regards,

Greg Guenthner
for The Daily Reckoning Australia

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