After half a decade, the massive U.S. housing crisis is officially over.
Pricing and demand for homes are improving, banks are no longer saddled with billions in sour loans, and shares of many homebuilders are trading far up from their generational lows seen in 2008 and 2009.
So should investors prepare for a housing boom in coming years? If so, that would make this a great time to buy homebuilding stocks, which have recently cooled off after multi-year gains. Here's a look at five key stats to look for in the housing market to give a sense of what lies ahead.
Source: Freddie Mac
The average 30-year mortgage since 1971 has been 8.6%, which means that today's 30-year mortgage is priced at half the long-term average.
|That means that over the past five years, a cumulative 3.5 million households that normally would have been formed are still missing. Much of that is reflected in the high number of millennials still living with their parents.
Demographers assume that this cohort won't stay at home forever and will eventually create a powerful force for housing demand. But high levels of student debt may compel these younger buyers to opt for smaller, less expensive homes than their parents bought.
|The recent rebound in home prices is likely to aid the trend, as fewer mortgages are now underwater. Yet a further rise in home process could paradoxically create more headaches for homebuilders, as long-suffering homeowners that were saddled with underwater mortgages now look to put their homes on the market.|
|analysts still expect the major homebuilders to boost revenue from 15% to 40% in 2014, which increasingly looks like an impossible target. The coming earnings season could lead to a reset for those projections.
Fourth, still-low borrowing costs, coupled with solid rental income, enable many real estate investments to offer solid cash flow returns. That's why real estate investment trusts (REITs) continue to be one of our favorite asset classes.
Risks to Consider: Interest rates have moved up only modestly, but a more serious spike in rates (perhaps due to Washington's myriad fiscal crises) would likely put renewed pressure on the housing market.
Action to Take --> The housing market appears to have cooled off in recent months, thanks in part to a still-slow job market and a faster-than-expected rebound in home prices. The real estate market may continue to see tepid sales and pricing gains for the next few quarters, but the long-term outlook for this industry is quite bright. As a result, any further weakness in the sector's share prices are likely to signal an emerging value opportunity for many investors who thought the group was starting to show too much froth over the past few years.