Posts Tagged ‘u.s. housing market’
The National Association of Realtors released its most current report on pending home sales; it was utterly dismal. April witnessed a contraction from March of 11 percent; year-on-year pending house purchases fell by 26.5 percent. It must be recalled that a year ago the U.S. housing market was already in feeble shape.
These numbers confirm that America’s residential housing market remains in pathetic condition. This massive share of U.S. economic activity, the faltering of which triggered the ongoing global financial and economic crisis, remains in pathetic condition. With no recovery in sight-and it must be recalled that housing is typically the leading edge of a real economic recovery from a deep recession, there is no clear path towards healthy economic metrics. This sobering statistic, in conjunction with other tepid economic indicators, including a weak employment market, highlights the fragility of the U.S. economy. At this point, it is only massive government deficits, projected at more than $1.6 trillion for the current fiscal year, that has prevented a continued massive contraction in overall economic performance in America. And, as I have pointed out before, massive public debt is no viable strategy for creating long-term sustainable economic growth.
Ground zero of the global financial and economic crisis of 2008, the collapse of the U.S. residential housing market, remains in critical condition. Despite trillions of dollars in public debt utilized as a backstop for the mortgage industry and gimmicks like tax credits for new home purchasers, the stream of date shows that the overarching trend in the United States is continuing home price deflation, as a rising proportion of outstanding mortgages are under water.
One recent survey indicates that in January of this year 27 percent of all American mortgages were under water (balance of mortgage exceeds market value of home),compared with 20 percent in August 2010. The National Association of Realtors Pending Home Sales Index most recently has tracked downward movement on home sales, and prices in most parts of the United States continue to decline.
With a weak housing market in the U.S. seemingly immune to massive injections of borrowed public money, no wonder Fed Chairman Ben Bernanke is printing money like a crazy man on LSD. His most recent bout of quantitative easing does not seem to have stimulated the domestic housing market at all, though it has pumped up the Dow Jones index to absurd ratios of price to earnings. However, as 2008 demonstrated the centrality of housing to the U.S. economy and not its hyperbolic stock market, the continuing weakness in this core sector does not bode well for a sustained recovery, both in America and throughout the global economy.
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.
