With the economic recovery and jobs on everyone’s lips, have investors and analysts forgotten the market that got us into this mess in the first place?
What’s happening with the housing market? Are home prices done falling? Are home foreclosures slowing down?
Is the housing market crisis coming to an end?
The next two years could usher in some vastly opposing viewpoints, and some surprising earnings.
With the FOMC’s minutes release tomorrow, and a widely expected comment on the housing sector, some analysts are optimistic about the housing industry’s future.
Reasonably so, according to BusinessWeek. Homebuilders’ share prices have been rallying this year.
“The rally is primarily due to the stronger-than-expected earnings that many of the companies have reported this season, which is giving investors some hope that these stocks will be good bets in 2010,” writes David Bogoslaw.
One of the reasons share prices have been climbing is new home orders. These, too, have been on the rise. Credit Suisse Equity Research Analyst Daniel Oppenheim estimates a 21% pop in new orders in the first quarter of 2010.
But housing prices are still falling, and could continue to fall. Shawn Tully for CNNMoney reports that Deutsche Bank research suggests prices will fall at least another 5%... More in pricier areas.
“The DB research also offers convincing evidence that the wrenching adjustment in housing prices is finished for much of the nation, with a bit more pain to come in selected areas.”
That may be why we’re seeing the turnaround in homebuilders, and also why we’re seeing a massive buyout in the commercial property sector.
Bloomberg reports that Simon Property Group Inc. (SPG:NYSE) just offered $10 billion to buy out General Growth Properties Inc. (GGWPQ.PK) in a hostile bid.
SPG is the country’s largest shopping mall owners, and General Growth Properties is in bankruptcy. From Bloomberg:
About $9 billion of the bid is in cash, Indianapolis-based Simon said in a statement today. General Growth shareholders would get about $9 a share, including $6 in cash, the statement said. Unsecured creditors would be repaid in full for about $7 billion, according to Simon, which said it made its offer public after receiving “no substantive” response from General Growth.
Back in April 2009, General Growth Properties filed the largest real estate bankruptcy in history. Even then Simon Property Group tried to buy some of the struggling company’s properties.
With the bottom coming in the real estate industry, General Growth Properties is not negotiating with Simon… But it is trying to work its way out of bankruptcy. If it can emerge intact, it will still be the second-largest shopping mall company in the U.S. – behind Simon Property Group.
But that’s the commercial side of the business… What about the future of residential homes?
There’s an opinion floating around that in 2011, there will be a housing market crisis… with a shortage of houses!
Here are the numbers… Forbes’ Alexandra Zendrian reports, “Brian Wesbury, chief economist at First Trust Advisors, says that if Americans don’t start focusing on building new houses, the market will have a much bigger problem on its hands.”
Wesbury says that the U.S. needs 1.5 million new homes built every year just to satisfy population growth. He says that right now, housing inventories will only last six or seven months.
With housing prices still falling, though, it’s hard to get homebuilders to, well, build.
The number of homes completed in December 2009 was 11.2% less than in November 2009, and 25.3% less than the number completed in December 2008.
And the number of foreclosures hitting the housing market are starting to slow… Down 10% from December 2009, though up from a year ago.
What we have coming in the next two years is a kind of bungee effect, with the long stretched-out pause at the bottom of the rope. Housing prices will likely fall a touch more, but with inventories slipping away, and homebuilders’ earnings growing, the housing market could spring back quickly in 2011.
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