Is US housing really on a recovery path?
Posted on 03 August 2009 with no comments from readers
The US housing downturn which drove the world into recession is showing signs of bottoming out. But a long period of slight or flat growth looks far more likely than anything worthy of the name recovery.
Since then end of 2006 an amazing $4 trillion in US home equity has vanished. Home prices edged up in May, bringing renewed hope that the 40 per cent plunge in house prices might be coming to an end.
Bottoming out
In any falling market there has to be a bottom. Housing generally takes longer than a stock market to find a bottom because homes are illiquid and people also live in them.
But it might still be too early to call a bottom this time. Rising unemployment and mortgage rates are both negatives for housing.
Unemployment is set to top 10 per cent this year, weighing heavily on house buying decisions, and a tax credit on mortgages expires on November 30. Meanwhile, interest rates are being held at artificially low levels by the Federal Reserve and one day they will go back up again.
So a double-dip US housing recession is by no means out of the question, and any chance of a strong recovery can most certainly be ruled out.
Some buyers from Dubai are heading to California and Las Vegas for their holidays this year to sniff around. It is true prices look very attractive compared to three years ago.
Foreclosure bid contests
What went up has gone down, and then some. It is true that some foreclosure properties are attracting bidding contests and that surely has to be another sign of a market bottom, although the still rising tide of foreclosures points in the opposite direction.
Then would-be buyers should also bare in mind that buying into a previously booming asset class is seldom a good investment. Smart money moves onto the next big thing, and does not hope lightening will strike again in the same place.
There are always new bubbles on the horizon, and chasing gold, silver, or geothermal energy as asset classes might make more sense than getting back into US property too soon. The US economy still has many unresolved issues and is an unlikely candidate to lead the world out of recession.
