The latest news to come out of the US housing market is that new home sale volumes have slumped to levels not seen since 1963 and established home sales have fallen to a decade low. The new home sales figures are considered to be a leading indicator for established home sales market, suggesting the US housing market is likely to be in for further pain.

Despite the fall away in volumes, the plunge in housing prices appears to have abated. According to Core Logic’s House Price Index (www.corelogic.com) house prices have stabilized about 24% lower than where the peaked back in September 2005. Core Logic’s forecasts suggest that the US housing market is likely to continue to be held back by distressed sales and predicts further but modest falls in home values going forward:
“Home price volatility and collateral risk remain very high. The stabilization phase and policy intervention since the spring of 2009 has run its course. Prices are expected to further moderately decline as the economy remains weak through the fall” said Mark Fleming, chief economist for CoreLogic.

The weakness in the US housing market comes at a time when a variety of key indicators remain in ill health:
- National unemployment remains at 9.5% (compared to Australia’s 5.3%)
- Mortgages more than 90 days in arrears are estimated to be at almost 10% of all loans. The situation is even worse in states like Nevada, California and Florida where the 90 days arrears rate is estimated to be around 20% of all loans (the percentage of Australian home loans more than 90 days in arrears is estimated at 0.6% of all housing loans)
- Housing supply is estimated to be at around 12 months (double the estimate for Australia which has about 6.0 months of supply currently advertised for sale)
- The 30 year fixed mortgage rate has fallen to 4.5% (the large majority of US home loans are locked in for 30 years) and is expected to fall a further 50 basis points by the end of the year. Note that mortgage rates aren’t pegged to the cash rate like they are in Australia. That fact, plus the fact that home loans are largely at ‘fixed’ rates makes it difficult for borrowers to take advantage of the low interest rate environment.
- Core Logic research indicates that more than 11.3 million, or 24 percent, of all residential properties with mortgages had negative equity at the end of the fourth quarter of 2009 (a borrower is in negative equity if they owe more on the mortgage than the home is worth). Core Logic also suggests that the typical US home owner with negative equity won’t move into positive equity until around 2015/16. In worse hit markets a move back to positive equity isn’t likely until around 2020.
A few points to take from the short summary above are that Australia’s housing market is radically different to that of the US. We have a housing shortfall, strong population growth, a robust financial system, low unemployment, improving economic conditions and a residential market that appears to be moderating in growth in a controlled fashion. Importantly, mortgage arrears have not moved upwards suggesting that Australian borrowers are coping with the increased level of interest rates quite reasonably.
Secondly, it looks like the US market has a long way to go before a recovery can be celebrated. While home prices appear to have stabilized, volumes remain extremely low and continue to show further falls. The housing market is arguably going to present the largest hurdle for a broad based US economic recovery and an improvement in conditions doesn’t seem to be on the drawing board any time soon.















The annual trend is clearly improving, suggesting that the banks may finally be loosening the purse strings on business related finance. The 0.4 per cent gain in May is still half of the five year average (0.8 per cent growth month on month) but the improvement is probably a sign that the finance sector is becoming less risk averse.
Despite the fact that banks may be loosening the purse strings to businesses they still have a clear preference to lending for residential housing. Over the last 12 months bank credit for housing has increased by 8.6% during the year. Over the same period, credit to business has fallen by -5.6% however, the magnitude of the annual decline in credit for business has slowed markedly in recent months.



