August Marks 8th Consecutive Month of Improvement in Real Estate Market
In this time of financial uncertainty we feel rather fortunate to have a self-described ‘contrarian’ on our side. Tom Dellinger with LPL Financial has been working us since about 2001 and his steady hand has been particularly reassuring over the past year or two. Tom is always on the look out for the silver lining and he forwarded this report from Brian Postol at Jesup and Lamont, one of the nation’s oldest investment banks to us last week:
“A combination of existing- and new-home sales in August fell 13.4% year over year, which was a slight improvement over the prior month’s 15.5% decline. Although the year over year remains negative, one cannot disregard the fact that Augusts’ improvement – while gradual – marked the 8th consecutive month of improvement from the trough level experienced in December 2007 of a 24.6% decline.
Keep in mind that existing home sales make up roughly 85% of the housing turnover weight in this study. Yes, the housing market continues to be weak. Turnover remains negative, housing supplies remain elevated, foreclosures are increasing and median prices continue to come down BUT there are early signs that things may be loosening up as consumers are seeing more affordability in houses as prices continue to come down.
Foreclosures have been a benefit to recent improvements in housing turnover and home improvement retailers are seeing results as well. While not to the extent of a normal house sale, individuals who use foreclosures as an investment still buy products to “spruce up” their property in order to resell it to a prospective buyer. Personally I had never thought of this, but it makes great sense.
In prior cycles, it has always been rewarding for investors to anticipate this change in housing turnover and the resulting impact on home-improvement fundamentals, and we believe nothing is any different in this cycle.
While we might be a bit early on our enthusiasm with this outlook . . . it is our contention that data points (housing turnover and industry fundamentals) do not get appreciably worse from this point, but carry a greater chance of accelerating from recent trends.
Assuming the credit markets get relief from Congress, we see credit availability becoming more assessable and home prices beginning to moderate from their downward spiral. With that said, do we expect a magic wand to be waved over housing . . . ? No.
However, we do believe there is greater than a 50% chance that the worst is now behind homeowners and better days lie ahead. That by itself would be enough to begin gradually changing the sentiment toward housing, and, more specifically, home-improvement retailers.”
My takeaway from this? It’s a great time to buy house and invest in home improvement retailers! I can’t help you with the home improvement retailers but if you’re in the market for a house then call me at 703.927.4554 and let’s add to that upward swing.