That great sucking sound you may be hearing is the sound of the US economy and Wall Street tumbling further into the black hole known as the housing slump.
News of the accelerating slide in US housing prices is contained in the latest Standard & Poor’s/Case Schiller index.
The index of single-family shows house prices contracted by 13.6% year-on-year in February, the biggest since records began in 1987. That compares to an annual rate for the 10 city index of 11.4% in January.
The broader 20-city index fell 12.7% compared with the year to February, 2007, the biggest drop since the index’s inception in 2001. This index was falling at an annual rate of 10.7% in January, so there has been a significant acceleration in price falls.
It shows that despite confidence that the worst is over with the credit crunch and high expectations for a rebound in the economy later this year; the depression in the American housing market is intensifying, not easing.
It’s no longer a subprime problem, analysts at Barclays investment bank reckon around $US800 billion of debt linked to subprime and higher quality so-called Alt-A mortgages could become problematic this year, putting further pressure on housing prices and mortgage values.
In fact US house prices have now fallen by more over the past year than the US stockmarket: the Standard & Poor’s 500, the major index is off around 8% since its peak late last year. US economists say house prices are now falling faster than anyone had previously thought possible and are acting like equity prices in the speed of the decline.
I just read a 3 day old rumour on an American website that the Aussie government is putting together a taxpayer bailout package for the banks here. Anyone Crikey peeps or readers hearing anything about this?
“US economists say house prices are now falling faster than anyone had previously thought possible and are acting like equity prices in the speed of the decline.”
Umm RBA are you paying attention, do you want the same blood on your collective hands. Betting the House on China is looking more and more like a punt rather than prudish management of the economy.
And can Labor stop pushing the inflation stick as if its the only economic boogy man, I know it is fun to bash the former government with it, but a recession will be blamed on you, and high intrest rates are just asking for it.
Remember this 20% decline in the US happened with negative real rates, we are at 3% positive.
Our rent yields are lower than theirs and our house price to income ratios are higher. The quicker it is over the better.
Those of us who have not made the mistake of buying a house in the bubble are not responsible for the mistakes of everybody else. We should not be subjected to inflation just so speculators who think they are homeowners can pretend they did not pay more than their houses were worth.
Bring on the high interest rates I say. The game is up anyway, a two year crash will be far better than a fifteen year slide.
Twenty percent declines are what’s needed in Australia. Maybe more. It’s a fallacy to believe that Australian real estate at current prices is in anyway linked to its productive capacity. The value of property relative to its productivity has blown out of all proportions. It’s a bubble, and should be spoken about as such.
These two blogs probably provide the best coverage of American housing collapse and its economic consequences:
http://globaleconomicanalysis.blogspot.com/
http://calculatedrisk.blogspot.com/