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U.S. Housing Market Remains in Deep Slump

June 17th, 2010

The U.S. Commerce Department released figures for housing starts for May 2010, and they were far worse than projected by economists. They plunged 10%, representing a seasonally adjusted annual rate of 593,000 housing starts, versus  659,000 for April. The decline in single family dwelling starts was 17%, the worst contraction since 1991.

The minor uplift in housing starts over the past several months was due entirely to government funded tax credits, paid for with borrowed money. With these short-term gimmicks now being phased out, the organic weakness in the American housing market can no longer be obscured. It must be recalled that the trigger for the current global economic crisis was the collapse of the sub-prime residential housing market in the United States. With worsening public deficits forcing governments to phase out artificial props for a fractured housing industry, we are now seeing adjustable rate, near prime and prime mortgages going into default, not only in the U.S. but throughout the world. This will all serve to undermine what has thus far passed for an anaemic recovery from the worst economic downturn since the Great Depression of the 1930s.

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