Time to Buy U.S. Real Estate?

CLICK TO ENLARGE U.S. House Price Trend 2013

Nadeem Walayat over at the MarketOracle.com has a bullish argument for going long U.S. real estate.

His US House Prices Forecast Conclusion is: "The embryonic nominal bull market of 2012 is morphing into a real bull market for 2013 and with each subsequent year, expect an accelerating multi-year trend that will likely see average prices rise by over 30% by early 2016 (10% per year), which translates into a house price forecast based on the most recent Case-Shiller House Price Index (CSXR) of 158.8 (Oct 2012 - released 26th Dec 2012) targeting a rise to 207 by early 2016 (+30.4%)."

Nadeem bases his timing argument to go long U.S. real estate on:

• House prices have put in a bottom.
• House inventory is at a low.
• Price momentum has broken out to the upside.
• U.S. GDP is growing.
• Unemployment is falling.
• "ZIRP" until at least 2016.
• Nominal Wages are rising.
• Immigration will create new demand.
• Debt ceiling gives way to printing presses.
• A Mega Inflation Trend is overwhelming deflation.

Read Nadeem Walayat's full analysis here.

CHPC.biz readers will be aware I have been warning that the deflation risk is much greater than an inflationary one here in Canada and as I remarked in a Jan 10, 2013 BNN interview when asked where in Canada real estate investors should look, I replied; "Investors should apply the income approach when evaluating any potential buy to discover if there is a return on investment, and that is not in Toronto or Vancouver." 

My advice would be the same to anyone looking in the U.S. Make sure the buy price is low enough and the net income stream is high enough to produce a real yield (get my free spreadsheet evaluator here). Otherwise if Nadeem is wrong about his inflation bet, you could wind up with a decaying illiquid asset that you have to subsidize. 

An historic saga of betting against deflation and being on the wrong side of the inflation-deflation cycle is the Equitable Building in New York.

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CLICK TO ENLARGE StockCharts $Lumber

Warning 5 days Later

Don't get too excited about the current U.S. housing rally. The Lumber Index has rolled over and broken the 20 Day EMA to the downside. There is still no sign of wage inflation in the U.S. and without it, any move up in real estate price is probably just a speculative mirage.

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CLICK TO ENLARGE http://advisorperspectives.com/dshort/updates/Employment-Wages-and-Hours.php

CLICK TO ENLARGE & Credit: Macquarie Private Wealth, James Price, 1Q 2013