US housing recovery to boost economy

Construction Building 480

Optimism is returning to the US housing market following the US presidential election, with tentative signs of a recovering economy, according to sector specialists.

Schroders chief economist & strategist Keith Wade says: “There are bright spots in the world economy but the US housing market has really taken off.

“This is something we’ve been monitoring for some time. This is where all the problems started, you have the boom based on sub prime lending. The point we’ve been drawing attention to for sometime is the level of housing and construction in the US is probably below the replacement rate of the minimum rate.”

Wade says: “It’s reckoned in the US you need to build around a million homes a year in the US to keep up with demographics and depreciation and so on, we’ve been below that for about two three years.

“It’s now picking up to around 850,000 annual rate, it’s picking up. So that means construction is going to add to GDP this year and probably next, that’s quite important and will help the economy.”

The Schroders chief economist points out that house prices rises are helping bank balance sheets, and leading to further lending.

He adds: “At this stage we can’t say this is it, [that] this is going to lead to a big sustainable recovery [but] it’s definitely a big step in the right direction which is helpful.”

Robert Royle, co-manager of the Smith & Williamson £76m North American fund, is also positive about the US housing market, and believes supply could soon reach demand.

Royle says: “Housing is running at three quarters of a million per year – 800,000 per year – and we can easily get that back to 1.2 million, the level you need to get to break even.”

US housing affordability is the best it has been in 20 years and there is real signs of life in the housing market, says Royle.

“When it comes to US economy there are certain things you can hang your hat on and housing is real thing you can see [improving] going forward and that’s what is going to cause the strength in the US economy,” he adds.