Register  
US housing market needs renovation
Monday, 29 August 2011 8:55am

Until the US housing market starts to right itself it's unlikely US consumers are going to gain too much confidence and without confidence the chance of economic recovery will remain a forlorn dream.

House prices are still down 32% from their 2006 peak and this is where the viscous cycle kicks in. Depressed house prices decimate loan-valuation ratios which triggers defaults but wannabe vendors can't sell in a falling market.

Low interest rates don't help much either. According to RP Data, most US home owners are on 30-year fixed rate mortgages and so don't feel the relief when rates fall, like they have been in the US for a long while now.

In contrast, in Australia most home buyers are on variable rate mortgages so as soon as rates relax they feel it in their wallets almost immediately, which reminds us why Australia is known around the planet as one of the most reactive economies to monetary policy changes.

Returning to problems state-side, distressed house sales make up an estimated 30% of all residential real estate sales. Combined with the 8% of US mortgages that are 90 days or more in arrears it's not a pretty picture. In Australia only 1% are in that category.

The result is sales volumes are 33% below their 5-year average. US real estate researcher CoreLogic reckons, according to a newsletter released by RP Data, that the number of distressed sales could even rise another 25% before the year is out.

RP Data's Tim Lawless said the depressed US housing market is pushing both their government and banking sector to look for increasingly creative ways to attack the problem.

Like banks partially cutting their losses by offering principal reductions and more flexible re-payment options, though this is more about banks protecting themselves than their customers. Many US mortgage being non-recourse lets borrowers walk away and all they have to do is hand back their house keys, leaving the banks with the underwater asset.

The worrying backdrop is that US unemployment since the early 1990s has normally been around 6%, meaning its current 9% level - albeit it's still better than the near 10% level it almost hit a year ago - is 50% higher than normal.

The nervousness this is fuelling among consumers helps explain why retail spending is growing only 0.2% year on year, the flattest growth rate in years. Trouble is, given the way consumer spending drives the US economy, the result is that until this starts to improve not much else will.

And some people think Australia is doing it tough. Yeah right.

Ben Ong is on annual leave.
 

Blogs
Follow the industry experts.
Christopher Page
Christopher Page
Managing Director

It needs to be said, most advisers are great advisers
Emotions are running high among financial advisers and it's not surprising. Over the past year, but especially over the last few weeks ...read more
 
Benjamin Ong
Benjamin Ong
Chief Economist

Reflation, rotation and the taper
'Tis being my final type (drivel, to some gentle readers) for the year, we'll take a look back at the 2013 that was to seek the lessons ... read more
 
Alex Dunnin
Alex Dunnin
Director of Research & Editorial Services

We need leadership, but whose?
What do you call a leader with no followers? Just someone out taking a walk. Financial services is an odd industry sector in that ... read more
News Search   
VideoBrought to you by
Platinum Asset Management
Reflecting on more than three decades in the industry, Platinum Asset Management managing director Kerr Neilson says one of the changes in the industry has the been the erosion of the information advantage ... Watch video
AMP Capital Australian Equity Concentrated Fund
We invite you to watch our latest video program on FSiTV featuring AMP Capital's Co-Head of Australian Fundamental Equities Gian Pandit, as interviewed by Mark Smith, deputy editor of Financial Standard. In ... Watch video
Who wants to be a RockStar 2014 Highlights
Count's Chris Mekhail was crowned 2014 Rockstar this year for his soaring rendition of Swedish House Mafia hit 'Don't You Worry Child' at the annual Who wants to be a RockStar event organised by the Finance ... Watch video
MAX 2014 Highlights
The annual MAX forum places all the movers and shakers in financial services when it comes to sales, marketing and distribution. Find out the recipe of those who are taking the lead. Watch the video n ... Watch video
Get it
Daily
FREE to your inbox, get the Financial Standard Daily Email.
Get the Free
iPad app
Download the Financial Standard iPad app for FREE
Industry
Events
JUL
25
AUG
06
FSC Annual Conference 2014 - Accelerate
13
Equities Forum
14
Alternative Investments 2014 Conference
26
Best Practice Forum: Managed Accounts
SEP
10
Risk and Liquidity Forum
News
Bites

$245 (inc GST) for 1 year
 
 
Copyright © 1992-2014 Rainmaker Group
All material on this site is subject to copyright. All rights reserved. No part of this material may be reproduced, translated, transmitted, framed or stored in a retrieval system for public or private use without the written permission of the publisher.
Link to something sK7LiZF5