MarketExpress
US housing is coming out of a coma
Author: Henk Luijten
Henk Luijten joined ING Investment Management (ING IM) in July 2000. As one of the financial editors of Investment Content Management (division of Marketing & Communications), he is responsible for the written communication of ING IM’s investment views and expertise to client servicing departments, ING Private Banking and to various client groups directly. He does so by writing a wide range of publications. Prior to joining ING IM, Henk worked as an editor and an investment analyst for MeesPierson and as a credit analyst for ABN Amro. Henk holds a Master degree (Law, Amsterdam, 1980) and a Bachelor degree (economics, Hogeschool Limburg, 1972).
Risky asset support is building. For our asset allocation stance this has resulted in a small overweight in Global Real Estate. Since the beginning of the year we have been modestly overweight equities.
Markets started the year on a positive note with most risky assets printing significant positive returns in January. Especially markets that lagged behind in 2011, such as emerging market equities (+10.4% in euro), performed excellent. Global real estate equities (+7.4%) belong to the above-average performing categories. It could well be that this market evolution has further to run. Last week, we moved Global Real Estate to a small overweight (from neutral). US housing is coming out of a coma; global policy measures, receding tail risk and quantitative real estate signals support our small overweight position.
Consumer and homebuilder confidence have started to rise
Source: Thomson Datastream, ING IM (January 2005 - January 2012)
Last year, the lack of confidence was responsible for the bad performance of risky assets. The lack of confidence has also been a key explanatory factor for the failed recovery in house prices. However, since the 4th quarter of last year US economic data have been surprising positively. A confidence turn for the better may therefore entail positive feedback loops rendering the trend in global real estate sustainable.
US house prices did correct during the Great Recession on average by some 30% from the peak mid 2006. They found a bottom in the first quarter of 2009, but hover along that same bottom ever since. House price falls coupled with sharply lower mortgage rates (as the Federal Reserve adopted a low interest rate policy combined with quantitative easing) led to record housing affordability levels. Despite record affordability, housing did not recover.
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Senior Investment Specialist Ad van Tiggelen about Asset Allocation in October.