US house prices could fall again
Jan 29, 2010
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American housing data have softened over the past few days. Confidence among homebuilders has slid to its lowest level since June. Housing starts dropped by 4% in December. Existing house sales tumbled by 16.7% in December alone to a four-month low. The Case-Shiller Index of house prices came in below estimates, posting a 0.2% rise in November.
What the commentators said
It's becoming clear that if you remove stimulus measures from the housing market, it will "gradually begin to slow down". The bulk of the bounce stems from the homebuyer tax credit, an incentive that benefits first-time buyers most, said Capital Economics. The sales slump in December shows that many sales were rushed through to beat the original end-of-November deadline of the credit (it has since been extended until April). First-time buyers still comprised 43% of December's sales.
The credit is unlikely to be extended again, while the Fed plans to end its purchases of mortgage-backed securities in March, which implies higher mortgage rates, said James Politi in the FT. Subdued consumer confidence and high unemployment don't bode well for demand either.
On the supply side, delinquencies and foreclosures "continue to set records", said Lex in the FT. Nearly 10% of the 53 million outstanding mortgages in the States were more than 90 days late, or in foreclosure in the third quarter of 2009 – up from 5% the year before. The rot is spreading fastest in the prime sector of the market. Underlying supply (once you include houses heading for foreclosure and those owned by banks but not officially back on the market yet) is double the official total of seven months. In short, there are "good reasons to think a fall in house prices may resume".
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