July 1, 2009

Twists and turns for U.S. housing markets

- RCD Digital Media

Despite the shaky economy, now might be a good time for Americans to buy a home, says Reed Business Data’s chief economist Alex Carrick.

“There is the $8,000 tax break for first-time home buyers. There are the record-setting low mortgage rates that can be locked in for extended periods,” he says.

“And there are low prices that are resulting from weak demand and building cost declines, particularly with respect to materials, although some labour is cheaper, too.”

That said, a “huge overhang” of existing homes are now owned by the banks and being discounted in price, Carrick notes.

This will be exacerbated further by ends to government-mandated moratoriums on sub-prime mortgage foreclosures, he says, in addition to an upcoming round of prime mortgage foreclosures in regions hit hard by the recession, particularly northern auto sector and durable goods-producing states.

Meanwhile, reduced employment prospects in many regions are undercutting the confidence that is needed to go ahead with a major purchase such as a new residential property.

U.S. Census Bureau housing statistics for May show that the number of new homes sold has stayed almost exactly flat since January 2009, at about 340,000 units.

With new home starts so low, the unsold inventory has continued to drop. The number of unsold single-family new homes in the U.S. is now well below levels much earlier in this decade, going as far back as the dot.com collapse.

Most important for the construction industry are new home starts. At 532,000 units nationally in May, they were a little ahead of their five-month average for the year so far of 514,000 units.

Almost all markets are down by 50%, January through May of this year versus the same period last year.

For more analysis read Carrick’s full report.

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