TWO questions are being asked about the parlous state of the US housing market — can it get any worse, and what damage will it do to the world’s biggest economy? First, the facts. Sales of existing homes slumped by 4.1 per cent in July, according to the National Association of Realtors. Over the past year, the median house price has risen by a paltry 0.9 per cent, a fall in real terms. To Ian Shepherdson, chief US economist at High Frequency Economics, these figures are a sign that a “less-than-once-in-a-generation” bursting of a housing market bubble is under way. Years of ultra-low interest rates — down to as little as 1 per cent from mid-2003 to mid-2004 — encouraged a housing boom in the US in much the same way that cheap mortgages have done in Britain in recent years. With rates up to 5.25 per cent and holding there, Mr Shepherdson says that the housing statistics are “fast becoming horrific”.
He argues that America’s consumers are now set to rein back their heavy-spending ways as they get used to the end of the house price boom. “Over the next few months, retail sales of housing-related items should begin clearly to slow and will eventually start to fall outright,” he said.
Other analysts are more upbeat. While agreeing that the US economy is set to slow, analysts at Citigroup, the bank, have argued that talk of a recession caused by slowing house prices is premature. Stephen Kim, a homebuilding analyst for Citigroup, claims that a bottle-neck in land development, driven by political pressure to stop urban sprawl which emerged in the 1990s, has kept the supply of new homes artificially low, driving up prices. “The very nature of this anti-growth constraint makes it unlikely to dissipate any time soon,” he wrote last week.
If that analysis is accurate, it suggests that the slide in prices may come to an end sooner rather than later — meaning that opportunities for canny buyers in the US remain.
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