With existing home sales at a nine-year low, the housing market is the weakest link in the United States’ already weakened economy. And there doesn’t appear to be much cause for optimism as we enter spring, the unofficial house selling season.
Spring is peak season in the real estate industry and, despite a fall in the number of houses being sold, the signs could be positive as we enter April with realtors reporting an increase in the number of people viewing properties.
Unfortunately, it appears that most people are merely window shopping as this rise in interest has not translated into a rise in sales.
February saw a 10 per cent reduction in the sale of existing homes, the largest drop since July, and there is nothing to suggest that things will improve any time soon with most forecasts suggesting that the prices won’t even stabilize until sometime in 2012.
One of the reasons for this is that many people are still reeling from the recent boom and bust in the housing market which has left over one third of American home owners in negative equity and led to a foreclosure epidemic.
Sales of newly built houses are at their lowest point since 1963, the seasonally adjusted figure of 250,000 new homes sold per year falling well short of the 700,000 that economists regard as healthy.
And even some imaginative incentives from homebuilders, which range from low financing and a year’s free insurance to a brand new car, look unlikely to drag the housing market from it’s slumber.
One reason for this could be the massive disparity between the cost of a buying house that is being sold on and buying a new build which can cost, on average, up to 30 per cent more!
And this is a problem that could have more far reaching consequences as a downturn in the sale of new builds implies a drop in demand which means that fewer new houses are built and so the construction industries suffer and the effects knock on across the wider economy.
Added to that there is still a high level of uncertainty that still hangs over the economy, much of which sends out contradictory signals to potential home buyers. For example, although mortgage rates are competitive, strict lending standards still alienate a large percentage of borrowers.
Another problem is that although house prices are now relatively low, unemployment and the threat of unemployment is still high and so people don’t feel able to make the huge financial commitment required when buying a house.
This may bring even greater problems in future years as the United States is now being viewed as an ‘emerging market’ with a recent study from Capital Economics stating how 60 per cent of sales were to foreigners and investors. This means that foreign investors are buying up properties with the intention of selling them on for a profit in the future, thereby taking the money away from the US economy.
So even if the economy as a whole recovers sufficiently, it may be some time before the US housing market is full of the joys of spring.
Article written by Les Roberts