The global financial crisis was driven by US housing and subprime lending, and until that sector recovers there can be no meaningful recovery.
Yesterday, data showed sales of existing homes falling for a third month in February and the number of properties for sale hitting a two-year high. Actual house sales were running at their lowest level in eight months at an annualized five million sales.
Oversupply is still choking the US housing market, and it is getting worse, not better. The number of homes on the market jumped 9.5 per cent, increasing the time it would take to sell all properties at the current pace up to 8.6 months from 7.8 months at the end of January. House prices fell 1.8 per cent to $165,100 from $168,200 a year ago.
Existing home sales comprise 90 per cent of sales activity in the US housing market so these figures are particularly significant.
The expectation in these circumstances is that price falls will continue and inventories continue to rise. Besides, over the next two years some three to four million mortgage resets threaten a new wave of foreclosures, increasing the oversupply of property still more.
This was the story that Wall Street did not want to hear yesterday and it was largely brushed over by TV commentators as more ‘boring’ housing data. That was perhaps a defining moment in the annals of superficial television commentary.
For without a recovery in the housing market, the US economy is doomed to a double dip. And without a recovery in the housing market it has to be said, what does a ‘fragile recovery’ actually mean? Is it just a lot of hot air and profit increases from firing people?
Businesses that downsize are survivors perhaps, but they are not signals of economic recovery. That comes much later when the credit cycle resumes. There is scant sign of that, and interest rates are so low that the next move will still have to be up.
Financial television is peddling make believe by ignoring the evidence right in front of our faces. How much longer can this absurd comedy run? US housing led us into the downturn and is just not leading us out.
Disclosure: No positions