The US housing market has been on “life support, sustained by the federal government”, says David Stevens, the head of the Federal Housing Administration. Yet even before the government’s tax credit for first-time buyers expired in April, prices were weakening again after last year’s bounce. The Case-Shiller index shows that prices across 20 big cities were 3.2% down on the previous quarter.
Underlying demand is poor, with mortgage applications for new purchases down to a 13-year low last week. High unemployment, heavy indebtedness and tight credit are set to keep it that way, says Capital Economics. At the current rate of sales, there are over eight months’ supply hanging over the market, while six months is the figure usually associated with stable prices.
Still-mounting foreclosures are adding to the pile; one in seven mortgages is now delinquent or in foreclosure. Banks are also still sitting on a heap of foreclosed homes that will go on the market at some point. National prices, says Patrick Newport of IHS Global Insight, “still haven’t hit bottom”.