IS THERE MORE DOWNSIDE TO HOUSING PRICES?
Good thoughts here from David Rosenberg on the price of real estate in the United States. Rosenberg points out that housing is still an excessively high percentage of household assets. If history is any guide it could mean there is at least another 10% downside in house:
“Chart 4 is the ratio of U.S. household real estate assets relative to the entire asset pie in the personal sector. At 26.7%, it is well below the bubble peak of 33.6%, but is still just back at the starting point of when the mania was just beginning (a decade ago). “
“While the latest ratio for Q4 is below the long-run norm it is still nowhere near the 24% bottoms we have seen in the past (to mean revert, you ultimately have to move through the mean). If we were to retest those lows, it would mean a further 10% correction in housing valuation. Not sure the bank stocks are braced for that possibility. With a 67% homeownership rate and a $500 billion to $1.0 trillion equity hole, we are well beyond the pale of normalcy.”
Source: Gluskin Sheff
I would think that we would actually have to fall below the 24% lows as marked on the chart. The housing mania creating residential investment that was wholly unnecessary. This overcapacity should serve to drive down home values in the near term until the market has corrected enough to allow itself to clear. I’m looking for a 20% correction in home prices from here.
It is guaranteed that bank stocks have not priced this in.
But, what about demographics and household formation? Sorry, can’t buy the thesis on this single chart.