by Charles Sizemore | October 11, 2012 1:12 pm
On the front page of my Tuesday USA TODAY, the paper ran a headline that caught my attention: “Home Prices Build to New Peaks in Dozens of U.S. Markets.”
In more than 100 metropolitan areas, home prices hit new all-time highs over the summer. And in 50 more, prices are within 2% of an all-time high, which is within rounding error in my view.
Among the cities specifically listed were Anchorage, Austin, Boulder, Denver, Indianapolis, Pittsburgh and Portland (Maine). Interestingly, though not necessarily surprisingly, almost half of the 150 cities were in just four states: Texas, Oklahoma, Colorado and North Dakota.
Virtually all of the cities had one thing in common: They never really participated in the late-1990s-to-mid-2000s bubble and thus never suffered much of a crash. With little ground to catch up, they found themselves at new all-time highs relatively quickly.
Click to Enlarge Before we get too excited about this, I should note that the cities with prices hitting new highs collectively only account for 7% of America’s housing stock. And the strength in these markets is certainly not seen in broader indices, such as the popular S&P Case-Shiller 20-City Home Price Index shown here. The Case-Shiller Index has yet to see much in the way of improvement and still is down nearly a third from its old highs.
Still, this brings up an important point: Investors who fixate on the broader indices miss the granular details. Some markets — such as Las Vegas and former boomtowns in California and Florida — still are down 50% from their old highs and might not see a real rebound in our lifetimes. But others — such as the aforementioned — have never been healthier.
What conclusions are we to draw from this? I think we are in the very early stages of a new building boom that won’t become obvious to most people for another several years. While most investors focus on the continued gloom in the high-profile bust markets, the family formation of the Echo Boomers will quietly create a new boom in the growing cities that attract them.
The crisis and the bad economy that followed put the brakes on marriage and baby plans for millions of Echo Boomers. But these trends will not be postponed forever. This is the largest (or second-largest, depending on where you make the cutoff) generation in history. They cannot sleep in their parents’ homes or on their friends’ couches indefinitely.
Click to Enlarge I’m not yet prepared to start recommending homebuilder stocks. As a group, they have already risen more than 100% over the past year. But this is an area I’m watching.
If we see any significant correction here, I might recommend we pounce.
Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter, and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities. Sign up for a FREE copy of his new special report: “Top 3 ETFs for Dividend-Hungry Investors.”
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