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Wednesday, March 26, 2003

Is the Housing Bubble Over?

The numbers coming in are certainly preliminary, but the tendency is clear: first it was the UK now the US. I am convinced that the mechanism wherby consumption was sustained while all else failed passed through a housing market on the rise. This bear market in property, which was aftert all is said and done a world wide phenomenon, with Australia, the UK and Spain leading the way, needs to be understood as a knock-on effect of the crack in equity markets. With interest rates at rock bottom, a housing market which only seemed to go up-and-up appeared to be the best protection for savings. The emphasis here, of course, has to be on the word 'seemed'. Now the market 'seems' to be stalling, and it could be all over bar the shouting. If this is confirmed, then the next knock-on effect will be on consumption. Watch-out below!

New home sales in the US have plunged this year at the fastest pace in two decades, and the average home price is below what it was a year ago, according to an official report released on Wednesday that provided the latest, preliminary evidence the US housing market has peaked. The Commerce Department said sales fell to a seasonally adjusted annual rate of 854,000 in February - the lowest level since August 2000. The decline over the past two months is the biggest of any two-month period since February 1982.

The report showed the median home price had fallen 4 per cent over the past year - the biggest 12-month decline since the aftermath of the 1990-91 recession. Analaysts have blamed war and terrorism jitters, the weak economy and last month's unually bad weather for much of the weakness. But the report showed declines across most major regions.The housing market has been a rare bastion of growth for more than three years, but the past few months have seen slowdowns in the rise of home values, the pace of housing construction and a sharp decline in builder optimism, despite declines in mortgage rates to new lows. The FT reported last summer that homebuilder executives, apparently fearful of a future slowdown, had unloaded their own shares of company stock at a record pace through the second quarter of 2002.
Source Financial Times

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