Pretium 2020 Mid-Year Housing Outlook
We believe a meaningful, multi-year increase in leveraged credit market distress has begun and expect defaults and losses to increase through 2021.
We believe the single-family rental sector is well positioned to capitalize on the structural imbalances in residential real estate.
Vertical Integration Key to Generating Long-Term Outsized Returns
Over the past 10 years, U.S. households have significantly de-levered and de-risked their balance sheets, standing in sharp contrast to the incremental leverage and risk added by U.S. corporate borrowers and the federal government.
Post-crisis mortgage regulation created two classes of mortgage loans, “qualified mortgages” and “non-qualified mortgages,” based on certain loan characteristics including income verification and debt to income ratios.
Home prices exhibit a stronger correlation to GDP growth and employment growth than interest rates due to the generally pro-cyclical nature of housing values.
We expect structural imbalances in the U.S. housing market will continue, leading to further tightening of fundamentals and higher shelter costs.
Pretium is constructive on the near-term outlook for the U.S. economy, but risks to forward growth are mounting from late-cycle headwinds and potential downside risks from domestic and global policy.
In our view, the sharp change in homeowner affordability, coupled with strong housing demand and tight supply, is likely to drive significant rental demand from households priced out of homeownership due to cost or credit.