Every time you see a data point on housing the first thing to remember is that affordability is at all time highs. Over time, affordability and population growth will solve the US housing crisis. The only thing left to solve for here is duration.
Today the NAR reported a 3.0% decline in March sales, which was weaker than the 1.5% consensus estimate. The volatility in all housing data today suggest it's very difficult to get a read on trends looking at one month numbers. On the margin the more relevant point is that home sales, like other consumer centric companies, showed improvement from early this year, but nothing happens in a straight line. Inventory of existing homes remains elevated at 9.8 months, but is down from the worst levels seen last November at 11.0 months.
All of this remains consistent with our Macro Housing call that a housing bottom will happen in 2Q09. We continue to believe that there is stabilization in housing price declines. As seen in the chart below, we did not go below the January lows and we are now seeing a notable uptick in median sale price. A clear bottoming process!
One nagging concern is the end of the foreclosure moratorium. I continue to see anecdotal evidence to suggest that speculative cash bids for bank-owned homes have been a significant portion of existing home liquidity -particularly in harder hit markets like Florida and southern California.
As more forced sales come to market, it will place pressure on buyers seeking to capture the relative value spread between bank sellers and non-distressed owners, who have held on to higher asking prices.
Today, the WSJ ran a story on bidding wars between buyers vying for bank owned properties at these levels. Clearly, any expansion of the spread between these two types of sellers could dampen liquidity as more foreclosed homes come on the market.
Other than the MACRO implications of our housing call there are other ways to play the rebound in housing. Our Healthcare team has a very compelling way to play a housing recovery - Senior Housing.
For the Senior Housing companies, home sales are the key underlying factor. The majority of seniors own their homes free of any mortgage and have the bulk of their net worth tied up in their home. As the housing market tightened beginning in 2007, occupancy and pricing has stalled.
With a severe decline in the revenue drivers and leveraged balance sheets the equities collapsed and pose significant upside from current levels. If housing is indeed bottoming, Brookdale Senior Living (BKD) and Assisted Living Concepts (ALC) could benefit from the reversal of the same drivers to the upside.
Howard W. Penney
Managing Director