The overall US economy may be recovering, but the sector that kicked off the credit crunch is still in big trouble. According to the Case-Shiller 20-city index, prices fell for a seventh month in a row in January, leaving them 3% down on an annual basis. Having bounced last year, this index is very nearly back to the 2009 low. Sales of new houses slumped by 16.9% month-on-month to a record low in February. The median price of existing houses is at a nine-year low, according to the National Association of Realtors, while new house prices are at their lowest since December 2003. Building permits are at a record low.
What the commentators said
“The housing-market recession is not yet over,” said David M Blitzer of Standard & Poor’s, “and none of the statistics are indicating any form of sustained recovery.” Indeed, this double dip looks set to deepen. On the supply side, there is now an inventory backlog of around nine months’ sales, a far cry from the six that usually accompanies a balanced market.
There’s plenty more in the pipeline. According to RealtyTrac Inc, foreclosure filings are likely to climb by another fifth in 2011. What’s more, said Lex in the FT, regulators are pondering new measures to tackle the foreclosure crisis. These would accelerate the process, adding “a new wave of homes” to the backlog of houses banks have repossessed but not yet listed.
As far as demand is concerned, a credit squeeze amid tighter lending standards is negating the impact of low mortgage rates. It will be exacerbated if new regulatory proposals, including the return of 20% down-payments on mortgages, are enacted. And the still-shaky labour market is deterring buyers. The upshot, said David Semmens of Standard Chartered, is that “prices will continue to move downward probably for the rest of the year”.