Michael V. Salm, Co-Head of Fixed Income; and Brett S. Kozlowski, CFA and Kevin F. Murphy, Portfolio Managers, June 25, 2014
The U.S. housing market appears to be transitioning from a fast-paced recovery to a more mature expansion underpinned by a balanced supply-demand outlook. As a result of higher home prices and lower consumer indebtedness, U.S. homeowners in the aggregate now have more home equity than debt, underscoring a dramatic improvement in numerous housing-related indicators since 2011. These include a substantial reduction in the amount of underwater mortgages and a greater number of banks easing their lending standards.
In our view, stable U.S. population growth, combined with new financial regulations affecting the mortgage market, suggest that home prices are likely to grow steadily from current levels. Recent Consumer Price Index data showed that the housing component of the index was rising, indicating that demand for housing is growing, which puts upward pressure on rents and home prices.
Large-market commercial real estate prices rose significantly in 2013 and are now higher than they were in 2007, prior to the start of the liquidity crisis. Commercial real estate cash flow trends are improving, which has contributed to tighter CMBS spreads [less of a yield advantage over Treasuries] and increased new issuance.