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US house prices in narrow range since 2009 [ClearOnMoney]
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US house prices in narrow range since 2009

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Commentary

US house prices in narrow range since 2009

2 May 2013 by Jim Fickett.

As many have remarked, the US housing market has experienced a bit of a boom in the last year and a half, and prices have risen substantially. The Case-Shiller 20-city index, seasonally adjusted, is up 9% from its recent low in Jan 2012. The monthly price movements continue to track inventory, measured in months' worth of sales, quite closely and, with inventory relatively tight, the latest month-to-month increase was about 1.2%:

Yet when you back off from the short term movements and look at the overall history of the price level, what is most noticeable about the years since the recession ended is that prices have remained in a fairly narrow band. Despite the boomlet, prices are still 28% below the 2006 peak:

(The percentages I quote are for the seasonally adjusted index; the figure above, from the latest S&P release, shows non-seasonally adjusted data. When looking at the overall trend, the difference is immaterial.)

Part of what has driven the recent tight inventory and price rises has been large investment funds that are buying up thousands of properties. These funds may have gotten a bit ahead of themselves, as shown by recent trends in Las Vegas, one of the extreme markets during the boom, the bust, and also the recent run-up. There rents are dropping and vacancies are high, not a particularly promising environment for big investors hoping to be major landlords. From Reuters:

The once-beleaguered Las Vegas housing market has been on fire since investment firms led by Blackstone Group LP, Colony Capital and American Homes 4 Rent began buying homes here some eight months ago, backed by $8 billion in investor cash to spend nationally.

These big investors and a handful of others have bought at least 55,000 single-family homes across the U.S. in the past year. In the Vegas area alone, they have accounted for at least 10 percent of the homes sold since January 2012, according to a Reuters analysis of housing transactions. …

Cracks are showing in Vegas and beyond. Here, rents on single-family homes were down an average of 1.9 percent in March from a year ago. …

Industry insiders estimate that roughly half of the more than 55,000 homes acquired by institutions over the past year in the U.S. have yet to be rented.

The combination of rising acquisition costs, prolonged rental lead times and declining rental income is disrupting the spread-sheet analysis behind Wall Street's bet. That could pose problems for what once seemed like a slam dunk. …

Early last year, Oaktree Capital Management agreed to provide up to $450 million in equity to real estate investment firm Carrington Capital Management for its foreclosed-home acquisition program. Carrington was projecting an internal rate of return of 25 percent over a three-year period for its portfolio of single-family homes in several cities, according to a marketing document.

Oaktree is now reluctant to commit more money to the trade after souring on the buy-to-rent strategy, said people familiar with the firms. Oaktree saw returns on rents compress and no longer is comfortable with Carrington's initial heady yield projections, they said.

In October, hedge fund Och-Ziff Capital Management Group cited a narrowing in rental income for its decision to put its book of 300 homes in Northern California up for sale — a process it has just about completed. …

The Vegas market has unsteady legs. Statistics compiled by the University of Nevada at Las Vegas show some 40,000 homes are largely vacant - 8 percent of the metropolitan area's single-family housing stock. Housing research firm RealtyTrac estimates there are 20,000 single-family homes in the metro area either owned by a bank or in some stage of foreclosure.

(See the Reference page Inventory of existing US homes for sources, background, and past commentary.)