A lot of people in America are eating their hats right now.
Big fat juicy cowboy hats.
And this is good news for you, let me tell you. How? I’ll get to that.
But first, why are these guys having a side of hat with their steak?
Because the housing market there has just gone and proved all the fire and brimstone preachers of property apocalypse wrong.
National House prices in the Case-Shiller index saw a thumping rise in March. They’re now 10.9 percent higher than a year ago – the biggest annual increase in almost 7 years.
This graph here tells you the story they didn’t want you to know about.
There’s a very clear trend emerging there, right?
And importantly, it’s the third month in a row that all 20 cities in the index recorded increases. This means the upward trend in American house prices is broad-based. It’s not just one or two healthy cities, but the whole country that’s in upswing.
There is a very, very clear momentum behind U.S house prices right now.
And many cities are posting 20-plus percent growth rates. Phoenix was up 22.5 percent. San Fran was up 22.2 percent. Vegas was up 20.6 percent.
Thank you. Thank you very much.
It’s true that these were the cities that were hardest hit by the downturn. But I’ve written before that it seems pretty clear that the US market over-corrected on the downside. This is the bet that Warren Buffett is making, and the latest data seem to be proving him right.
And even the laggard cities are doing pretty well. New York, New York was up 2.6 percent, Cleveland up 4.8 percent, and Boston up 6.7 percent. These are still very decent results.
And at the end of the day, 12 of the 20 cities in this measure posted double digit growth rates.
Like some sauce with that, cowboy?
And a number of housing indicators are in the expansion zone. Housing starts and permits are up, and sales of new and existing homes have been trending higher too. Home-builder confidence is at a six-year high.
People are getting excited.
And this is all good news for the US, and it’s good news for lil ‘ol Aussies over here too.
First, rising house prices will give US consumer balance sheets a good shot in the arm. As consumers feel wealthier, and as less of them remain stuck underwater with their mortgage, this will lead to more consumption and more borrowing.
Indeed, consumer confidence jumped to the highest level since February 2008 in May, and it’s likely that rising house prices were a big factor.
The improvement in consumer balance sheets will also help repair the banks’ balance sheets and reduce the over-hang of bad debt. This will allow banks to start lending more, and ease up on lending conditions.
So it’s a big plus for the US.
And it’s no surprise that the US stock markets reacted accordingly on the news, busting through to new all-time highs.
But why is it good news for us?
Well the first, most obvious point, is that a strong US makes for a strong Australia – at least economically speaking.
Australia has been slogging it out alone on the global stage, with only China playing a supporting role. The US, European and Japanese consumers have all been AWOL, and if it wasn’t for Asia then we almost certainly would have joined the rest of the world in recession.
So the US will be a very welcome return from the bench.
And I think a resurgent US will inspire the rest of the world too, and help the globe finally put the monster of the GFC to bed.
But the other key factor is the impact I think this will have on property market confidence here.
Over recent years, a lot of the fear-mongering around Australian property was nothing more than “quick, look over there!”
People showed us an American market going to pieces, and said, “Australia will be next”, as if there was some red-ink peril domino’ing it’s way down through Asia towards us.
Leading the chorus was Steve ‘keep your hands off it’ Keen, with lots of pretty graphs comparing Australia to the US. Sure, they were pretty. But it turns out they didn’t explain a darn thing.
They ignored the fact that Australia and the US were fundamentally different markets, set in fundamentally different economies.
But it was all too easy just to point to American mums and dads drowning in mortgage debt, and make scary monster noises. Wooo-ooh. The facts never came into it.
There was a correction here, but nothing like what we saw in the US. The only similarity I reckon, is that like the US, we also over-shot on the down-side, relative to the fundamentals.
And confidence became the key pressure keeping a lid on prices. Nothing else.
So what I reckon will happen is that as Australians see US house prices go into launch mode, as they see that the worst of it is well and truly over, they’ll garner more confidence about prospects for the property market here.
And prices, already a year into recovery, will flick the launch switch too.
And so now is the time to buy in cheap and buy at the bottom.
Imagine you had bought in Phoenix a year ago. You’d have made over 20 percent this year already. Not bad for doing nothing but having balls.
I’ve been one of the first independent commentators to jump on this opportunity four years ago. And for that period of time, whilst the Australian dollar has moved up and down from $0.80 to $1.10, Aussie investors have all done well.
By the way, the door is still open in the States as we speak. With the dollar at $0.96, there is still plenty of upside there as well.
This is where the market’s going. Don’t listen to those cowboys, still desperately trying to spook the herd.
They’ll eat their hats, mark my words. Whilst they’re going South, go North. There’s a lot more money there.