GREED & Fear by Chris Woods of CLSA, is out with the latest issue today. Chris Woods has some interesting comments on the housing sector, which we note below:
GREED & fear believes there are clear signs that housing sector has bounced off the bottom and that in specialist markets such as Florida foreign buying, mostly from Latin America, has absorbed a lot of the supply. Still GREED & fear remains nonetheless of the view that it is too big a leap to assume that this is going to lead in the near future to a reinforcing cycle of rising house prices and rising mortgage demand. GREED & fear’s biggest reason for saying this is the lack of income growth being experienced by the average American. The other issues include the lack of a genuine clearing of the housing market because of the socialised nature of so much of the mortgage market; as well as the likelihood that many Americans will continue prefer to rent rather than to buy because of the genuine mobility and flexibility renting provides, even if buying is theoretically cheaper on a monthly cash-flow basis, based on current mortgage rates.
In this respect, GREED & fear continues to believe that America’s residential investment property sector remains in a bull market with rents having risen by 4.4% since bottoming in April 2010 based on the CPI shelter index. These rising rents are also influencing US overall CPI inflation data as the cost of shelter accounts for 31% of the US CPI basket and 41% of the core
CPI. Thus, US headline CPI inflation rose from 1.4%YoY in July to 2.2%YoY in October with core
CPI rising by 2%YoY. While the CPI shelter component rose by 2.3%YoY in October, the biggest
growth rate since September 2008 (see Figure 6). However excluding rents, US core CPI
inflation slowed from 2.5%YoY in January to 1.8%YoY in October.