Housing crisis deepens in America

07 May 2010

After a bounce over the past few months, US house prices are trending down again. The Case-Shiller price index fell month-on-month in February, the first drop since last spring. Home values tracked by the Federal Housing Finance Agency have now fallen for three months. Expect more declines, says Lex in the FT. At the current rate of sales, there is around eight months' supply on the market. That's higher than the seven usually associated with stable prices, and it doesn't include households in, or approaching, foreclosure.

Foreclosures rose by 16% year-on-year in the first quarter, according to RealtyTrac. Capital Economics reckons another five to six million properties may yet be repossessed. It's hard to envisage a surge in demand soaking up the mounting supply. Tight credit, high unemployment, lacklustre income growth and heavy household debt will constrain demand. Further price falls, says Lex, will "weigh on consumer confidence, job mobility, and hence economic recovery".