|
The future for ‘good old America’ looks brighter and brighter every day. And that’s not a ‘glass half full’ sort of situation either. There is more to this recovery than many had first thought and as it gains momentum, so too does its strength and the confidence of those responsible for its long-term success –consumers. This time last year, the outlook, although positive from this corner, was certainly one backed more by optimism than proof. Today, however, markets turn a corner as the very factors that saw their downfall begin to recover and confidence is underpinned by the willingness to invest backed by the confidence of key performing assets. That confidence comes from everyday consumers as well as institutional investors willing to take a calculated risk on assets which have been beaten and bloodied to a point of undeniable long-term value.
As is often the way, markets were the first to show promise with the Dow tacking on an additional 2000-odd points for 2012. And those areas which generally follow a stock-led recovery certainly followed suit with major home building and housing related stocks vastly outperforming the greater market. As we navigate into 2013, it appears that same area of the market will continue its newly developed bout of confidence.
click to enlarge
The Dow Jones Industrial Average Capping Off A Clearly Successful 2012
click to enlarge
Home Depot soars by 60% as the recovery in housing follows the stock market’s return to positivity
So why is it that the housing market and housing-related stocks will continue to reach new heights in 2013? Well, the answer comes down to that momentum caused by increased confidence and a brighter outlook for the American future remaining far stronger than any potential downside from a fall-out of the likes of Europe. Domestically, America is set to continue its upward trajectory and the following factors are likely to be instrumental in its ongoing success:
Inventory Constraints: What was once a market flooded with excess inventory, the actual availability of housing is fast declining. Not so much due to the banks running out of stock but institutional competition driving much of the competition to snap up single family homes to be converted into real-time performing assets. Between America’s largest holder of Single Family Real Estate, Blackstone Group and its rival Colony Capital LLC, they snapped up a cool 16,000 homes in the past few months alone. In addition to these major players there are hundreds of other managed funds and institutional competition vying for a slice of the US Real Estate market. With all this acquisition of properties and the refurbishment to create performing rental assets comes a demand for building supply which is where companies such as Home Depot (NYSE: HD) are already reaping the benefits.
Rising Values, Rising Confidence: As home values continue to rise, so too the confidence of home owners. With prices moving higher and a light at the end of the tunnel for those facing potential foreclosure, it is likely home owners will continue to hang on to their houses and those in a position to do so will also seek to add to their asset portfolios. It’s this drive in confidence which perhaps provides the biggest boost in sentiment to the US domestic economy. Jobs are coming back, consumers are spending and the wheels turning this giant economy are again beginning to turn. And the momentum can be felt across all sectors from consumables to automotive and technology. Even retail is starting to show promising signs.
Whichever way you look at it, a little colour is finally coming back to the face of the US economy. Domestically the market is strong and momentum has never been better. International investors can never underestimate the power of domestic momentum. In a country of more than 300 million people, it’s those domestic drivers which will ultimately see America and the Dow climb towards new heights. I never thought I would hear myself say it but a 15,000 year-end target could well be possible…
Always Looking Forward,
Lachlan McPherson |