BlackRock: US housing prices may have hit bottom
Announcement posted by FCR (Financial & Corporate Relations Pty Limited) 21 Jun 2012
Sydney, 21 June 2012 – There are signs that real estate prices may have reached bottom in the United States, with minimal declines of up to 5% over the next year or so according to BlackRock, Inc. (NYSE: BLK).
Ewan Cameron Watt, Chief Investment Strategist, BlackRock Investment Institute said, “Home prices in the United States have fallen to 36% from their peaks, and we believe the decline is slowing – and perhaps on the cusp of reversing itself.
“Our base case takes into account competing market forces. On the one hand, many indicators are pointing upward. These include slowing price declines, increasing affordability, an uptick in loan demand and a reduction in supply. This is counterbalanced by factors such as the effect of retiring baby boomers, the weak financial health of the US consumer, the difficulty of obtaining a mortgage and regulatory uncertainty scaring off investors.
“A tidal wave of baby boomers is expected to retire and downsize in the next decade, adding to an already greying population. People are also marrying later and college graduates are burdened by student debt and unemployment, depriving the market of its traditional source of demand from first-time buyers. Tough lending standards are another hurdle.
“Most Americans have also become gun shy about buying a house. It is the mirror image from the boom years when aspiring homeowners were chomping at the bit. Then, they could only see upside because house prices would always rise. These days, most consumers focus on the downside – even if they have a perfect credit score.
“On the flip side, owning a home has become more affordable than during the boom thanks to the price drops, record-low mortgage rates (if you can get one) and the effect of inflation.
“Taking into account supply and demand factors, we don’t expect a quick rebound to the heady levels of the early 2000s, it is more likely the recovery will take the form of a long, flat “U” rather than a “V”. It may even flat line for a while,” Mr Cameron Watt said.
According to BlackRock a holistic approach is needed to put the housing market back on solid footing. Actions include the need for government to guarantee mortgages; reshaping the government sponsored enterprises (GSEs) as market intermediaries for credit support; transparent and simple rules for credit support; securitisation and foreclosures; prioritising and synthesising public policy; and respecting investor rights to attract private capital.
“Sentiment is improving – slowly from a very low base. The majority of consumers expected only a modest decline in housing prices of up to 5% in a March survey and almost a fifth anticipated price rises, according to JP Morgan. A year earlier, a majority expected declines between 5% to 10% and fewer than 5% believed in price gains,” Mr Cameron Watt said.
Launched this month, the BlackRock Investment Institute’s latest report titled, In the Home Stretch? The US Housing Recovery (attached), reflects BlackRock’s debate and conclusions.
About BlackRock
BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At March 31, 2012, BlackRock’s AUM was US$3.684 trillion. BlackRock offers products that span the risk spectrum to meet clients’ needs, including active, enhanced and index strategies across markets and asset classes. Products are offered in a variety of structures including separate accounts, mutual funds, iShares (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions. Headquartered in New York City, as of March 31, 2012, the firm has approximately 9,900 employees in 27 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia, and the Middle East and Africa. For additional information, please visit the Company's website at www.blackrock.com.
Ewan Cameron Watt, Chief Investment Strategist, BlackRock Investment Institute said, “Home prices in the United States have fallen to 36% from their peaks, and we believe the decline is slowing – and perhaps on the cusp of reversing itself.
“Our base case takes into account competing market forces. On the one hand, many indicators are pointing upward. These include slowing price declines, increasing affordability, an uptick in loan demand and a reduction in supply. This is counterbalanced by factors such as the effect of retiring baby boomers, the weak financial health of the US consumer, the difficulty of obtaining a mortgage and regulatory uncertainty scaring off investors.
“A tidal wave of baby boomers is expected to retire and downsize in the next decade, adding to an already greying population. People are also marrying later and college graduates are burdened by student debt and unemployment, depriving the market of its traditional source of demand from first-time buyers. Tough lending standards are another hurdle.
“Most Americans have also become gun shy about buying a house. It is the mirror image from the boom years when aspiring homeowners were chomping at the bit. Then, they could only see upside because house prices would always rise. These days, most consumers focus on the downside – even if they have a perfect credit score.
“On the flip side, owning a home has become more affordable than during the boom thanks to the price drops, record-low mortgage rates (if you can get one) and the effect of inflation.
“Taking into account supply and demand factors, we don’t expect a quick rebound to the heady levels of the early 2000s, it is more likely the recovery will take the form of a long, flat “U” rather than a “V”. It may even flat line for a while,” Mr Cameron Watt said.
According to BlackRock a holistic approach is needed to put the housing market back on solid footing. Actions include the need for government to guarantee mortgages; reshaping the government sponsored enterprises (GSEs) as market intermediaries for credit support; transparent and simple rules for credit support; securitisation and foreclosures; prioritising and synthesising public policy; and respecting investor rights to attract private capital.
“Sentiment is improving – slowly from a very low base. The majority of consumers expected only a modest decline in housing prices of up to 5% in a March survey and almost a fifth anticipated price rises, according to JP Morgan. A year earlier, a majority expected declines between 5% to 10% and fewer than 5% believed in price gains,” Mr Cameron Watt said.
Launched this month, the BlackRock Investment Institute’s latest report titled, In the Home Stretch? The US Housing Recovery (attached), reflects BlackRock’s debate and conclusions.
About BlackRock
BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At March 31, 2012, BlackRock’s AUM was US$3.684 trillion. BlackRock offers products that span the risk spectrum to meet clients’ needs, including active, enhanced and index strategies across markets and asset classes. Products are offered in a variety of structures including separate accounts, mutual funds, iShares (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions. Headquartered in New York City, as of March 31, 2012, the firm has approximately 9,900 employees in 27 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia, and the Middle East and Africa. For additional information, please visit the Company's website at www.blackrock.com.