He said the large inventory of US homes expected to be offloaded by distressed sellers, coupled with constricted finance from US banks and agency lenders, means the US housing crisis that began in 2007 is far from over.
Along with veterans such as John Paulson, Lumsden who works at $11bn asset manager CQS was among the few portfolio managers correctly to foresee, and bet on, the US sub-prime crisis.
Largely as a result, his $1.5bn ABS fund generated 179% in the two years to June 2009.
Speaking at CQS’s client conference today, Lumsden said one in every five US home sales at present is a forced transaction.
“You have 11m or more units of distressed supply and a limit on credit available, so we expect to see a further decline in US house prices of up to 10% going through to 2012. Still then, there is significant amount of supply that will keep prices stable when they get there. What will be key will be existing home sales over the next two to three months, and how much distressed sales go up.
“If we see an increase in distressed sales that will impact the level of home prices in the home price indices, and the indices are an important part of the psyche of the underlying economy.”
Lumsden noted a lack of credit means about 30% of all US house purchases are all-cash transactions – “not a great signal” – and the US government has said they will try to withdraw the amount available through Fannie Mae and Freddie Mac.
“The key is to have a hedged portfolio to cover downside risk, to hedge your tail risk under these scenarios,” he said.
Lumsden’s fund has over 80% of its exposure to the US, but he said more opportunities could arise in Europe, not least if Greece restructures its debt or contagion appears.
