Caveat Emptor issued on US housing market by Canada’s Hexavest
The US housing market is showing signs of a full recovery, with home sales, property prices and construction all increasing, but Canadian investment boutique Hexavest believes the optimism may be overdone.
Marc Lavoie, vice-president of European Markets at Hexavest, the Canadian affiliate of US asset manager Eaton Vance, acknowledged the US housing market represents “a bright spot in a cooling US economy.’
But he added that the still high – albeit falling – rate of unemployment and anxiety surrounding the fiscal cliff, means that in his outlook he does not think that the current housing market can be heavily relied on to rectify the US economy. Realistically, its role in supporting and influencing the overall economy is restricted, Lavoie said.
“Due to the prolonged downturn of the housing market, it now represents only 2% of the US economy. So, even if the US housing rebounds by 15% next year, the overall positive effect is less than enough to offset the headwind coming from the tax increases and spending cuts that will result from the fiscal cliff negotiations.”
He said there is a lot of ambiguity surrounding the fiscal cliff:”There’s lots of smoke and screens going on about the fiscal cliff,” and that people are “hiding behind” it.
As for unemployment, Lavoie points out that over 46 million people are receiving so-called food stamps in the US.
Hexavest – which has about $11bn under management and provides strategic asset allocation for institutional clients – has a bearish outlook on the global economy as a whole, and is holding around 7% cash in balanced portfolios for its clients, reflecting the cautious view.
This contrasts with a recent annual survey of hedge fund managers by portfolio advisory firm Aksia: it said that US residential property could be one of the biggest ‘upside surprise’ for 2013.
Those managers surveyed also said the US fiscal cliff is the biggest market risk currently and the next asset bubbles could be in credit and fixed income, or US Treasuries.