The prospects of a housing recovery in 2012 seem unlikely as continued weak momentum carries over from the second half of 2011. Globally, housing bubbles are entering into peak mania phases as hot money seeks a safe harbor for the short-term. Back here in the United States, we can look at the cold hard reality that 2011 saw a record low number of single family completions. The positive news is that this aids in lowering the overall housing stock and provides a stronger buffer for shadow inventory that will leak out into the market over the next few years. A strong variable that is hard to factor in is this; we have 10,000 or so baby boomers that retire per day for the next 19 years and many will look to downsize. It should come as no surprise that the Case-Shiller prices are now at post-bubble lows. What does 2012 have in store for the housing market?
Record low number of housing completions
Home builders are first in line to register any demand for new homes. This demand was not to be found in 2011. First, new homes are more expensive and second, you have an enormous amount of shadow inventory that needs to filter through the system. So with these forces at work we saw that single family starts were at a record lows coupled with a record low in single family completions:
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Now why is this trend continuing five years into the housing crisis? One of the main factors is the lack of household wage growth. The media seems to think (or push) a notion that the problems in housing are based on purely supply related issues. The reality however is much more troubling in that the deeper issues in housing stem from major weaknesses with income and good employment growth. Because of this we have seen a strong demand for lower priced homes and these are coming from the distressed pipeline:
Source: Calculated Risk