More evidence has emerged overnight that the black hole known as US housing is no longer bottomless and looks like stabilising.
US house prices turned up for the first time in three years in May, which would have normally been an occasion for cheering on Wall Street.
Home starts and building permits have been rising now for a couple of months with sales of new and existing homes also recovering slowly.
But for once the Street took notice of other figures released yesterday, confirming a sharper-than-expected dip in consumer confidence as the good housing news receded into history.
Wall Street ended lower and investors were wary ahead of the first reading of second quarter economic growth in the US on Friday night, our time.
And then there were those analysts wary of shouting too loudly about the upturn in prices in the fear that anxious, debt-burden homeowners will seek to sell quickly and send prices crashing again. While that has to happen given the fragile finances of more than one fifth of all American mortgage holders, no one wants to see it right now.
Still, the news that the Standard & Poor’s Case Schiller Index rose on a monthly basis for the first time in nearly three years, was cheered.
US home prices have plunged more than 32 per cent on average from their 2006 peaks, but the rate of decline slowed in May for the fourth straight month and finally turned higher this month.
According to the report it was in fact the first increase in the monthly index since July 2006.
David Blitzer, chairman of the index committee S&P, said in a prepared statement: this is “the first time we have seen broad increases in home prices in 34 months. This could be an indication that home price declines are finally stabilising.”
“While many indicators are showing signs of life in the US housing market, we should remember that on a year-over-year basis home prices are still down about 17 per cent on average across all metro areas, so we likely do have a way to go before we see sustained home price appreciation.”
And Robert Schiller, the Yale economist who co-founded the index and who’s famous for warning that the housing boom was really a bubble, said that while slowing in foreclosure sales had helped, a future rise could send prices south.
“We could get more economic bad news, but it does look encouraging,” Schiller said.
The best performed area was Cleveland in the Midwest which has suffered for years: prices rose 4.1 per cent. But the city where there’s no impact is one of the founding members of the sub-prime debacle, Las Vegas, where prices dropped 2.6 per cent in May from April.
But surprisingly, it was the Conference Board’s consumer confidence index which had the greatest impact: it fell more than expected in July, echoing a report on Friday from Reuters and the University of Michigan.
The index fell to 46.6 in July from a reading of 49.3 in June. All components of the index fell by more than forecast. Taken with other surveys in the past two months, there’s now a discernible slump in US consumer confidence at a time when the market has been fairly robust and a flow of reasonable economic news, except for unemployment.
“More consumers are pessimistic about their income expectations, which does not bode well for spending in the months ahead,” Lynn Franco, director of the Conference Board’s consumer research centre, said in a statement.
Also yesterday, there was more upbeat commentary from a senior member of the Fed, with Janet Yellen saying the following: “we glimpse the first solid signs…that economic growth may be poised to resume. Indeed, I expect that to happen sometime this year.”
But Yellen said the weak labour market and downward pressure on wages remain a concern, while the slide in commercial real estate market poses a downside risk as well.
“A gradual recovery means that things won’t feel very good for some time to come,” she said. “I expect to see subdued consumer spending for some time.”
That’s what Fed chairman Ben Bernanke has said twice in the past week and it’s a message that may be getting through to the more bullish of American and global investors. Green shoots, yes, but they are weak and will be for some time to come — unlike Australia where we are now being warned that a new housing bubble could yet erupt.
Crikey is committed to hosting lively discussions. Help us keep the conversation useful, interesting and welcoming. We aim to publish comments quickly in the interest of promoting robust conversation, but we’re a small team and we deploy filters to protect against legal risk. Occasionally your comment may be held up while we review, but we’re working as fast as we can to keep the conversation rolling.
The Crikey comment section is members-only content. Please subscribe to leave a comment.
The Crikey comment section is members-only content. Please login to leave a comment.