Moremony services for properties

Moremony services said To paraphrase Jane Austen, it is a truth universally acknowledged that the US economy cannot recover until the housing market bottoms out. Like many such 'truths', there is in fact no evidence for this assertion. History shows that the stock-market finds a floor well ahead of the economy, that the economy (at least in terms of private-sector hiring and firing) bottoms out next, and that the housing market is the very last trend to turn. Therefore, any sign that house prices may soon level out would be very good news indeed for the wider US economy and even more immediately, the stockmarket. And so many US housing market statistics have now hit new lows that many commentators suggest we are near or even at the nadir. So are they right ?

Moremony services said One encouraging indicator, say the optimists, is the US National Association of Home Builders (NAHB) survey. The survey, which has traced an almost unbroken line through the past three years, now gives somewhat mixed signals. Estate agents are more downbeat than at any time during the 25 years that the survey has been conducted – in fact, the headline NAHB reading has fallen to a level below half the low-point it hit at the bottom of the 1991 recession (see the chart). However, a small but significant minority of estate agents are now more optimistic about the prospects for the market six months ahead.

This is worse than the 1990s

Moremony services said Unfortunately, that optimism is not yet supported by the numbers of prospective new buyers coming through estate agents' doors. They are staying away in record numbers. Still, some argue that this is an encouraging sign in itself. After all, things can only get better from here, can't they? And indeed, as the chart shows, the rebound in confidence from the 1991 lows was swift and steep. However, there was no banking crisis back then, so lower interest rates fed through fairly smoothly to easier credit conditions at the banks. This time we're facing a credit crunch – and it is biting harder than ever before.

Moremony services said Twice as many banks are tightening mortgage standards as did at the trough in the market in 1991, according to the latest Federal Reserve survey of senior loan officers. As for subprime mortgages, in a classic case of bolting the stable door after the horse is well over the hill, all the banks surveyed are now tightening lending standards. So unlike 1991, the Fed's easy-money policies are not getting passed on by the banking system to Americans on Main Street. What's more, even though US mortgage rates have been cut (specifically for qualifying new buyers) and affordability has recovered to its early 1970s highs, US banks report that mortgage demand not only remains very low but is still falling, to fresh 20-year lows. Banking crises don't just desiccate the lenders; new borrowers dry up too.

The problem with US housing

Moremony services said The market is undoubtedly correcting. The lack of credit has seen the median new house price fall 21.4% from its March 2007 peak. Mortgage rates have fallen at the same time, boosting affordability from both directions – properties cost less, and so do the loans to buy them. Meanwhile, reflecting the gloomy sentiment and ultra-tight borrowing conditions (across the board, not just for home loans), house-building activity has seized up. New housing starts are running at about 250,000 a year less than even during the very worst days of the 1982 and 1991 recessions. And this is the key to the market hitting rock .

Moremony services said And this is the key to the market hitting rock bottom. The US housing market's malaise may have been driven by the easy credit bubble and triggered by sub-prime mortgage defaults, but at heart it is an inventory-overhang problem – there are just too many houses. Just look at the 'completed new homes for sale' numbers. House-builders prefer to sell a new home off-plan before they've even broken ground. It's much less risky that way. But most homes are sold during construction, which takes eight or nine months on average. Prospective buyers can wander around the show home before selecting their lot and choosing final fit details, like kitchen and bathroom fixtures. The worst-case scenario for the house-builders is if a new development is completed but the properties aren't all sold.