America’s new housing collapse could shake investor confidence again: Maley

Global markets were able to shrug off concerns about Spain overnight, but emerging problems in the US housing market could be about to shatter investor confidence once again.

A recent note from US economic research group, Peak Theories Research, points to some troubling developments in US housing markets.

In the first place, housing prices again seem to be wilting. The report notes that the S&P/Case-Shiller National Price index fell 3.2% in the first quarter of 2010 from the final three months of 2009, which was the second quarterly decline in a row.

And despite the efforts of the Obama administration to prop up the US housing market, the report notes that the index is still 31% below the peak it hit in mid-2006.

Another disturbing feature is that the level of home foreclosures is rising. The report noted that bank repossessions hit a record monthly high in May, with a total of 93,777 US homes being repossessed by lenders during the month. This is 44%higher than May last year.

As the report points out, “at the very least, foreclosure activity will keep a cap on home prices, but could act as a downward pressure on home prices as cheap homes hit the market with banks eager to unload the merchandise”.

At the same time, the number of US homes up for sale rose by 11.5% in April. As a result, the number of homes on the market is at the highest level since last July.

The report notes that home sellers were probably rushing to get their homes on the market before the US government’s tax credits for home buyers expired at the end of April. However, it notes the build-up in unsold homes “is a potentially negative trend for housing.”

Another sign of distress in the US housing market is the decline in housing starts. Figures released overnight showed that US housing starts plunged by 10% to a seasonally adjusted annual rate of 593,000 in May, as builders lose confidence in their ability to sell newly-constructed homes.

The Peak Theories Research report also highlights that the worst US unemployment picture in nearly 30 years presents a huge risk to the housing market. It notes that more than 8 million jobs have been lost in the US since the end of 2007. The US unemployment rate now stands at 9.7%, although if the number of people who have stopped looking for jobs is included, the number is just under 17%.

Even worse, the report notes that last month, 46% of unemployed people had been out of work for more than six months – the highest proportion of long-term unemployment since 1946. The report argues that people are unlikely to buy homes while they remain fearful of losing their jobs. What’s more, among the jobless, there will be many who won’t be able to keep up with their mortgage payments, and who will have to let their homes go into foreclosure, which will depress prices even more.”

The report reaches the pessimistic conclusion that “recent trends in pricing, foreclosures and inventory seem to support the case for a double dip in housing as does the long-term trend in housing starts. A challenging employment picture provides reason to believe that these trends are likely to remain in place and especially with the removal of the government’s “glue”.

It says that the US housing market has experienced a period of “respite”, rather than “recovery” over the past year. And, even more direly, it warns that “until the asset class at the centre of the financial crisis heals – housing – we can be assured that the crisis itself is not over.”

This article first appeared on Business Spectator.