Autumn Update

By Javier Valiente posted on October 29th, 2013

Autumn has so far been dominated by the US shutdown and its looming debt ceiling- another example of political indecision off-setting market confidence.

Despite the unease that will creep in as we approach 17th October (when the US government will effectively run out of money to meet its payments) there is good reason to remain positive. The economy has been recovering steadily, with unemployment (7.2%) at a four and a half year low and house prices up 12.8% from a year ago.

Volatility will continue to put markets on edge but the long-term outlook for the US is bright. The challenge for investors is to manage holdings in the short to mid-term so as to achieve a decent income, even during stages of instability.

Housing Update

A recent report by CoreLogic estimates that short supply led to a drop of 33% in the inventory of repossessed homes in the US from August 2012- August 2013.

 

Capture_shadow_inventory

This is significant because foreclosed properties make-up the bulk of a ‘shadow inventory’ that can defy housing market forecasts.

If bank-owned properties remain off-market for long periods and are then put up for sale in huge numbers there is potential for a sharp supply increase, causing lower house prices. So, the fact that the overall shadow inventory is estimated to have declined by 22% in a year points to future stability; an improvement in house prices coupled with a declining shadow inventory is a sign of ‘real’ recovery in US housing.

Increased household formation and a backlog in construction should continue the trend of 10 consecutive months of shadow inventory decline. Young people that were unable to move out of their family homes during the recession due to debts and tight mortgage lending will be more able to do so as the economy recovers.

This should mean a rise in house prices and rents in the short-term as well as a strong foundation for the years ahead as the make up of housing inventory becomes more healthy.

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