A U.S. housing market update from some smart people
I had the opportunity today to sit with some very smart analysts with General Re-New England Asset Management, Inc. Known as GR-NEAM, they are a global investment advisory company that specializes in offering capital and investment management services primarily to the insurance industry. Currently their “global total unaffiliated assets under management” are about $62 billion. A small percentage of that figure is the investment portfolio of Frederick Mutual Insurance Company, Inc., a firm that I have had the pleasure of serving as a board member for about 20 years.
After reviewing the investment performance of the company, our committee is typically given an overview of what the GR-NEAM number crunchers see ahead for the national, as well as the international economies. Part of their overview today included a summary of what they see ahead in the housing market, specifically the “serious excess in housing construction” and the impact that this will have on values as the market “digests” the inventory. While the U.S. is feeling the pain, they showed how the excess problem in residential real estate problem is much worse in European countries such as Ireland – but that is not the focus of this piece; so I’ll still with this country!
The bottom line that comes from their crystal ball that was communicated to us is well summed up in the GR-NEAM October 2010 publication Reflections:
“The housing market in the U.S. is not getting better and is likely to get worse … [due to] serious excesses in housing construction … the U.S. is probably two to three years into a six to seven year process of digesting [its] housing inventory, with further pain to come for American households in the form of weak house prices.”
Their newsletter provides some eye opening historical graphs of Homeownership Rates compared to Housing Starts, Mortgage Borrowing and absorption predictions. An interesting statistic they bring to light is that currently there are “about 110 million households in the U.S. and 130 million housing units.” This alone tells us something.
My personal opinion is that since our local real estate market is part of the Metropolitan Washington DC area, and it has been historically more insulated from extreme fluctuations in the real estate cycles, we are likely to experience somewhat less of the serious predictions this group forecasts.