The basic appeal of the market is that prices are low but rising. The latest reading of the S&P Case-Shiller index reports that house prices were up in 18 of the country's top 20 cities over the year to October 2012, with an average rise of 4.3 per cent. Revealingly, cities in the Sunbelt and California - the areas worst hit by the recent boom and bust rollercoaster - posted the strongest gains.
What seems to have broken the old cycle is a combination of rising employment and limited stock. US unemployment - now at 7.8 per cent - continues to fall, albeit gradually. Meanwhile, the number of new homes on the market is roughly half its typical level before the building boom of 2000-06. Even the stock of second-hand homes for sale is now in line with its pre-boom norms. The so-called 'shadow inventory' of homes in repossession remains large by past standards but is falling rapidly.
Moreover, houses remain cheap by all the usual measures. They are 20 per cent undervalued relative to average disposable incomes and 7 per cent undervalued relative to rents, reports The Economist, using averages stretching back to 1975. That makes them high-yielding for investors and highly affordable for consumers - particularly in combination with 30-year fixed mortgages at 3.34 per cent, the current average rate.
So what could go wrong? As in the UK, one issue is that mortgages are cheap but rationed to those with substantial equity. Because of the crash - house prices are no higher than they were in 2003 - many families have no or negative equity. Some commentators, such as New York fund manager Jason Ader, therefore believe the recovery has been driven by private equity and hedge fund money rather than the US consumer. That suggests the recovery will fade out as rising prices reduce the returns on offer and create gains to crystallise - these are not long-term investors.
Another worry is the recovery's dependence on government props. If the newly re-elected Barack Obama takes steps to reduce government spending, unemployment may start rising again. Although that seems unlikely on the record of the past four years, it goes without saying that US national debt cannot continue to grow indefinitely by its current rate of over $1 trillion a year. The other major variable is mortgage rates, which are being deliberately suppressed by an expansionist Federal Reserve. "The housing recovery is as real as the US government wants it to be," shrugs one US stock analyst.
But by far the biggest problem for UK investors concerns the appropriate vehicle, rather than the asset class itself. Buying individual homes for rent requires on-the-ground research and management. Unless you have a local agent you have good reason to trust, the risks are legion. Lynn Martin, who has bought three repossessed properties in Atlanta through broker Belgrave Group, has already had to pursue (and pay for) eviction proceedings on all three for failure to pay rent. One home was subsequently empty for a whole year. She has since fired her agent, whom she accuses of doing insufficient tenant checks.
Even if you have a good agent, the direct approach involves an eye-watering degree of portfolio concentration. The US is a federation, with an even more diverse range of housing submarkets than most countries. San Francisco is booming as a result of strong demand from the tech sector, which is moving out of the suburbs of Silicon Valley into the city (a trend that is also boosting east London). Detroit is also posting strong house price growth, but more on the back of extreme falls than robust demand. Meanwhile, house price inflation in blue-chip markets such as New York and Boston is muted. So any single house will expose you to much more than simply the national phenomenon of housing recovery.
There are indirect, diversified ways of playing the US housing theme - the most obvious being housebuilders such as Lennar. But many think the recovery is already priced in. Henry Lancaster, an investment analyst at Coutts, says future returns have historically been poor when buying at the current ratio of share prices to book values. Equally, most of the housing-related consumer stocks, such as Home Depot or Bed, Bath & Beyond, are near all-time highs.
What of residential real-estate investment trusts? In the US, listed companies such as AvalonBay own huge portfolios of tenanted apartment blocks. But these are valued on the basis of rents, rather than by comparison with house prices. They may well be a decent long-term investment - but they're not a play on the US housing recovery, which could even lure away their tenants.
If I were renting a flat from AvalonBay, I would certainly buy a place of my own this year - as much for the cheapness of long-term loans as of houses. If I were a UK consumer looking for a holiday home in Florida, I would also take a serious look at the market. But, as a UK investor, the case for buying into the US housing recovery is, sadly, far less compelling.
