There was encouraging news on the US housing market this week. The Case-Shiller index of national house prices – 32% down from its 2006 peak – showed a 0.5% rise in May, its first monthly gain in over three years. The annual rate of decline slowed for a fourth successive month to 17.1%. But consumer confidence slipped for the second month in a row in July.
What the commentators said
It’s too early to sound the all-clear on housing. As Jan Hatzius of Goldman Sachs pointed out, the market has been bolstered by a number of recent moratoria on foreclosures. With the latter still rocketing, distressed sales look set to add to inventories. These are still far too high to permit a sustained upturn in prices.
In any case, “there won’t be a meaningful recovery in the US economy until consumers start to spend more freely again”, said Paul Ashworth of Capital Economics. That isn’t likely anytime soon.
For one thing, the housing slump has caused the worst episode of household wealth destruction since the 1930s and the loss is “going to weigh on consumers for years to come”, said Mark Vitner of Wells Fargo. Especially given that households accrued debts worth a record 130% of their income in the boom, while the savings rate is only creeping up slowly. Moreover, tax relief for consumers has now expired and personal income is on a downtrend as unemployment has risen.
The labour market is in an appalling state too, with unemployment heading for a post-war record above 10.2%. And it won’t recover fast, said David Rosenberg of Gluskin Sheff + Associates. Factoring in a record number of people now in part-time work who would rather be employed full-time, there are an unprecedented eight million people either unemployed or underemployed.
Eight million jobs is equivalent to over five years’ supply of labour during a typical recovery. So the outlook for consumption is grim; the trend towards “frugality” is still “in its early stages”. The chance of a V-shaped recovery is “1 in 50”.