The historic acceleration in the US against a backdrop of consumer price inflation that has soared to multi-decade highs Prices since the start of the COVID-19 pandemic have been “out of line” with market fundamentals, according to a blog post Office from the Federal Reserve Bank of Dallas.
“Our evidence points to abnormal US housing market behavior for the first time since the early 2000s boom,” the Dallas Fed said, citing real-time housing market data characterizing potential signs of “exuberance.” The data suggests that “the US housing market has shown signs of exuberance for more than five consecutive quarters into the third quarter of 2021.”
In particular, price-to-rent ratios have decoupled from market fundamentals and are in the state of exuberance, or “expectation-driven explosive value appreciation,” the Dallas Fed researchers noted. For the company specific context, Pennsylvania REITs (PEI) reflecting robust funds from operations in the fourth quarter higher rents and utilization. This comes as Rent affordability Issuance increased in February as US residents spent an average of 30% of their monthly budget on rent.
The researchers also pointed to the ratio of home prices to disposable income, a measure directly related to housing affordability. “The rapid rise in the statistic near the 2021 threshold suggests that US real home prices may soon decouple from per capita disposable personal income.” In an environment where consumer purchasing power is shrinking, the real contracted Disposable income rose 1.6% Y/Y in February and has been in negative territory since April 2021, around the same time that real economic growth peaked, according to data from fred.
In contrast to the Great Financial Crisis of 2007-2009, household balance sheets appear to be in better shape along with stronger equity positions, suggesting any economic headwinds from a home price correction will not materialize to the same extent as during the GFC, he said who blog.
The US is not the only country experiencing house price inflation:
The rise in home prices is a “global phenomenon,” wrote Charles Schwab’s chief investment strategist Liz Ann Sonders on Twitter post Office 28th March. In fact, 30 out of 60 countries (including domestic and emerging markets) “have experienced >5% real house price inflation,” she added, citing data from Capital Economics and Refinitiv.
Looking at the global real estate boom from a different angle, “The ‘Global Real House Price Index’ over the past 50 years shows the 3 periods when excessive easing led to real estate bubbles:” First in the late 1980s in Japan, then in the early 1980s years -2000 in the US and European Union, macro analyst Adem Tumerkan wrote on Twitter post Office March 30. “Mean reversion will eventually bring home prices down,” he added. Meanwhile, bond investors are pricing in the Fed’s transition to tighter monetary policy, with short-term Treasury yields rising rapidly and in some cases exceeding long-term ones, which usually precedes a recession or a slowdown in economic growth and inflation expectations.
House builder: DR Horton (goat), KB Home (KBH), ConsoleGroup (PHM), Toll Brothers (TOLL), lennar (LEN), Beazer Houses (BZH), triple peak (TPH), Hovnanian Enterprises (OOPS), NVR (NVR), Taylor Morrison (TMHC) and Meritage Homes (MTH).
Apartment REITs: Preferred Apartment (APTS0, Equity Residential (EQF), independence real estate (WROTE), Avalon Bay (AVB), blue rock (BRG), Camden (CPT), housing income (AIR), dwelling in Central America (COUNTRY) and Veris (any).
Mortgage rates exceeded 4.5% at the end of March highest since 2018.