JP Morgan’s Thomas Lee has a report out detailing the bull case for housing. This is becoming an increasingly popular theme as housing begins to look more and more stable. Attached are Lee’s 10 reasons to be constructive on US housing (via Business Insider):
- Housing starts are unsustainably at 750K, well below the 1.5MM long-term average, and we are likely at the front-end of a construction boom in the US.
- Vacancy rates are reaching equilibrium, we est <700K excess homes, down from 1.7MM peak.
- US Pop to increase by 15MM ’12-’17E, requiring 6MM incremental units of housing organically.
- Homeownership rates to reach 67% by 2017 from 66% today as population >55 increases by 11MM.
- We estimate 2.3MM pent-up household formation demand plus annual household formation is recovering to 1.1MM+ over the next few years from recession lows of 300K.
- Home prices are low on an absolute basis when looking at P/R ratio which at 19.9X is the lowest since 4Q87 and is the largest discount vs 10-year Treasuries ever.
- Home prices are beginning to rise, already at 1.6T annualized wealth effect since 1Q12.
- Rental bubble is forming (making homes cheaper) with rents no 20% more expensive than buying.
- Households have capacity for leverage with total mortgages down by 4MM since 2007 and debt service ratios best since 1994.
- Bank lending should begin to ease.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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