ING Investment Management International (ING IM) believes the decline in new households in the US has bottomed out as a result of the improving economy and labour market, which bodes well for housing demand in both the rental and sale markets..
Patrick Moonen, senior equity strategist at ING IM said: “Earlier on in the year when the Federal Reserve started to talk about the possibility of tapering its asset purchase, mortgage rates started to rise threatening the US housing recovery as affordability declined. During this period, real estate massively underperformed equity markets.
“The decision to delay tapering bought a reversal in the fortunes for real estate, although mortgage rates remain above this year’s lows. However, in their search for yield investors see real estate as an interesting asset class”
ING IM says that although mortgage rates are an important factor in real estate, it stresses that macro-economic and demographic fundamentals are just as important. In these two areas, the investment manager continues to see further improvement. However, it warns that the recovery in US housing may slow down as a result of issues around housing affordability and the first time buyers’ market.
This reached a peak in January, but since then a combination of higher mortgage rates and prices have ‘softened’ the data here. ING IM says that although prices are well below the all-time high reached in 2006, house prices in the US are at their highest level since 2008. In 2014, house prices are expected to rise with single-digit figures, a slowdown relative to this year. Also, monthly mortgage payments assuming a 30 year mortgage are now 25% higher than in April. On top of this, insurance costs have increased – especially cover for flooding.
First time homebuyers
Monthly property and insurance premiums for first time buyers as a proportion of median income is above the long term average. In addition to this, the younger population in the US is often more indebted than the overall average, meaning they tend to have a lower credit score making it more difficult and expensive to secure mortgages. This will adversely impact homeownership rates.
Patrick Moonen, senior equity strategist at ING IM said: “US real estate has experienced high volatility this year, and market data presents a mixed picture. However, overall there is a positive upward trend for this asset class, which we expect to be maintained.”
Source : Company