4 Reasons To Stay Invested In U.S. Housing

The stock market’s wild ride over the last couple of months may have introduced a measure of uncertainty into the investment outlook for some sectors of the global economy. However, U.S. housing was not one of them. 

America’s housing market is continuing to grow faster than the economy overall. We are seeing a number of opportunities and remain constructive on the sector. Here are four reasons why:




1. Strong job growth and consumer confidence: The U.S. economy has added roughly 3 million private sector jobs over the past year. This includes more than 750,000 new jobs in the 25- to 34-year-old cohort, an important segment for first-time buyers, a rate that is near a 15-year high. A pickup in wage growth is likely given the improvement in the labor market; the unemployment rate declined by 2.4% in the past two years to reach 5.1%. We expect more jobs and higher incomes will lead to rising consumer confidence and demand for homes, even in the face of modestly higher mortgage rates.




2. Low inventories and rising pent-up demand: Both the absolute level of inventory of new and existing homes (now 2.5 million units total) and inventory as a percentage of households (now 1.6%) are at or near 15-year lows. Over the past year, 1.5 million new households have formed; that compares with less than 1.2 million new housing units. In addition, over 30% of 18- to 34-year-olds are living at home. What does this mean? A lot of pent-up demand, and if it picks up, as we expect, housing starts will likely rise toward 1.5 million units (or higher) in the next two to three years. Simply put, with residential investment spending at 3.3% of GDP, the U.S. has been significantly under-building relative to long-term demand (the 55-year average is 4.5% of GDP – see Figure 1).

3. Willingness to lend and expanding demand for credit: Banks are finally lending again! In reviewing second quarter 2015 earnings details, we noticed that mortgage origination growth at all four of the largest U.S. banks rose by double digits. At the same time banks are increasing their willingness to lend, households are becoming more confident and many are now in a position to re-lever: Consumer debt service ratios are near 35-year lows. Importantly, a significant number of previously foreclosed homeowners could become eligible to buy a home over the next five years. As such, the demand and supply of credit is likely to pick up, which should support the U.S. housing market.




4. Relative affordability: At this juncture, owning a house is incredibly cheap – both from a historical affordability perspective and relative to the cost of renting (see Figure 2). Although some have expressed concerns rising rates will reduce affordability, keep in mind that it would take a two percentage point rise in mortgage rates to go back to the long-term average. A very modest pickup in mortgage rates, which are currently under 4%, can be handled by an economy adding 3 million jobs in the private sector alone, in our view.

How to take advantage of current trends

In many regions across the country, there is a significant shortage of housing inventory relative to job creation. In Orange County, California, for example, job growth is overwhelming housing inventory by a ratio of five to one. Our view based on the most recent data is that home ownership is cyclical: As housing prices rise, people become more confident, credit becomes more available. The most recent data on housing starts suggests a shift toward single family home construction. Home builder sentiment is at the highest level it’s been since November 2005. We expect companies tied to housing will see earnings growth much higher than the markets overall.

Investors seeking to capitalize on these trends should stay overweight U.S. housing and housing-related sectors. We continue to see value in select companies in areas such as building materials, home improvement, title insurance, homebuilding, banks and specialty finance companies as well as in non-agency mortgage-backed securities(MBS).

The Cheapest And Most Expensive San Diego Neighborhoods for Rent

San Diego rent prices continued to steadily increase across multiple bedroom types this September. The city maintained its place as the 11th most expensive market in the US to rent, inching ever closer to 10th place Seattle. One bedroom median rents jumped 2% to $1,540 alone last month, and are now up 7.7% in the past trailing year, while two bedrooms were also up 2.4% to $2,100.

Such increases have put San Diego ahead of Portland, Denver, and Philadelphia in our latest October National Rent Report, which details rent trends across the 50 largest cities in the United States.

Looking at the map above, the most expensive San Diego areas to rent this fall include Coronado ($2,600), East Village ($2,170), and Little Italy ($2,040). More affordable finds in the $900-$1,200 range can be seen in areas such as Oak Park, Burlingame, and El Cerrito.

If you’re interested in seeing how San Diego stacks up to the rest of the United States, view our National Rent Report for October, which analyzes over 1 million active listings available in the prior month.

To keep up to date with rent changes across the country, like or follow us on Facebook, Twitter, or Pinterest. In the market for a new place? Search over 2,350 San Diego apartments on Zumper.