The recovery of the US housing market rolls on, with the release of the Case-Shiller 20-city house price index recording the 12th consecutive monthly gain, with prices rising by a seasonally adjusted 1.1% in March and by 10.9% year-on-year. It was the strongest annual price growth since April 2006. However, house prices still remain -27% below peak, according to Case-Shiller (see next chart).
It seems everyone wants in on the action. Much has been said about US investment funds buying-up distressed properties for letting or flipping, which has added significantly to demand and price growth. Now the Chinese Government is reportedly examining using some of its $3.4 trillion of foreign currency reserves to purchase US real estate. From Bloomberg:
China is studying the possibility of investing a portion of its $3.4 trillion in foreign-exchange reserves in U.S. real estate, said two people with direct knowledge of the situation.
The State Administration of Foreign Exchange began the study after seeing signs of a recovery in the U.S. property market, said the people, who asked not to be identified as they weren’t authorized to speak publicly about the matter. China may acquire properties, invest in real estate funds or buy stakes in property companies, they said. The safety of the investments will be the top priority, said the people, who didn’t elaborate on a timetable or other details.
US consumers are also feeling giddy, which is typically a bullish signal for house prices. Both the University of Michigan and Conference Board consumer sentiment indexes for May registered big rises, jumping by 9.6% and 10.4% respectively over the month (see next chart).
There is typically a strong relationship between consumer sentiment and house prices, suggesting that price momentum is likely to be maintained (see next chart).
In a similar vein, US housing construction typically follows house prices, suggesting the surge in price growth and sentiment will flow into the real economy as well (see next chart).
In short, it looks like all systems go for the US housing market, which is experiencing strong growth in prices, sentiment, and construction, albeit from a low base.
