On the surface at least, the brutal crash in the U.S. housing market, which began six long years ago, shows few signs of abating.
But some industry players say early signs of a rebound are emerging, as U.S. housing inventories shrink and job growth picks up.
“We think we’re probably past the bottom now,” says Ralph Young, CEO of Edmonton-based Melcor Developments, which has roughly doubled its U.S. property holdings over the past year.
“How far we are past the bottom I’m not sure, but there are some pretty good signs in terms of the amount of housing inventory on the market. It has declined quite significantly.”
Still, the overall picture remains gloomy. As 2011 drew to a close, the most widely quoted gauge of U.S. home prices sank to its lowest level since the crisis began, with 18 of 20 major metro markets down last year.
All three of the S&P/Case-Shiller Home Price Indices – including the national composite index and benchmarks that reflect prices in clusters of 10 and 20 key cities – declined again in 2011.
The seemingly endless retreat defied the upbeat predictions of everyone from legendary investor Warren Buffett to Mad Money loud-mouth Jim Cramer, both of whom called for a rebound in 2011.
“The housing market ended 2011 on a very disappointing note,” David Blitzer, chairman of S&P’s index committee, said when he released the data in late February.
“While we thought we saw some signs of stabilization in the middle of 2011, neither the economy nor consumer confidence was strong enough to move the market in a positive direction.”
Following a 3.8 per cent decline in the fourth quarter, the S&P/Case-Shiller national house price index was mired almost 34 per cent below its mid-2006 peak.
“The pickup in the economy has simply not been strong enough to keep home prices stabilized. If anything it looks like we might have re-entered a period of decline as we begin 2012,” Blitzer said.
Ironically, a recent $25-billion US settlement between U.S. banks and all 50 state attorneys general over abusive foreclosure practices is expected to trigger yet another wave of home seizures.
Some five million U.S. homes have already been foreclosed since 2006, and one million more distressed properties are expected to hit the market this year.
And yet, despite the gloomy statistics, the mood is slowly brightening. Inventories are shrinking and sales volumes are accelerating, propelled in part by a huge wave of Canadian buyers.
In January, the latest month for which data is available, sales of existing homes reached an annual rate of 4.57 million, the National Association of Realtors reports. That’s the highest level since May of 2010. Observers say low mortgage rates and a recent pickup in U.S. job growth should keep the momentum going this year.
Under terms of the bank settlement, some homeowners will also benefit from reductions in their mortgage principal.
Another bullish signal: major private equity firms are moving into the housing market in a big way, buying up blocks of distressed properties that will be put onto the rental market, at least for now.
In January, Los Angeles-based Oaktree Capital Management and New York-based GTIS Partners announced plans to acquire $2.5 billion of foreclosed single-family homes in states with high foreclosure rates, such as California and Nevada, Bloomberg reports.
That’s likely to put a floor under prices and ensure a more orderly flow of unsold housing stock onto the rental market and eventually, the resale market. While this may not spell a rebound in U.S. house prices in 2012, the free fall of recent years may finally be just about over.
Kimberley Marr, a Mississauga, Ont.-based real estate broker with RE/MAX Legacy Realty, and the author of How to Buy U.S. Real Estate: A Canadian Guide, says if you’re interested in buying U.S. property, this is the year to do it.
She says home values won’t fall much further, it at all. In particular, Marr says demand for homes in the $400,000-plus range in more desirable neighbourhoods is firming up fast.
“Inventories are down dramatically com-pared to a year or two ago, especially in cities like Miami, Phoenix and Orlando. I am actually seeing bidding wars now for homes in the $450,000 to $460,000 range. I was in one bidding war earlier this year with four Canadians competing for a property listed in the seven-digit range,” she says.
Marr, who works with a network of cross-border real estate, legal and tax professionals to help buyers avoid some of the pitfalls associated with acquiring U.S. property, says Florida remains the No. 1 market for Canadian investors by far, followed by California, Texas and Arizona.
Melcor’s Young is also growing more upbeat. “Clearly it has taken much longer than I had anticipated a couple of years ago, but we’re still reasonably bullish on prospects for U.S. real estate,” he says.
Melcor has acquired about 750 low-rise condo apartment units in Texas that will be put onto the rental market until home prices rebound, as well as 250 finished housing lots in the greater Phoenix area.
“It’s still a pretty challenging economy in the U.S.,” he says, “but there are some pretty good signs of recovery.”
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