US Housing Crash – A long Cold Winter

There seems no end in sight to the US housing crash. Despite a massive quarter percent drop in the Federal Rate, confidence in the US residential property market seems at an all time low, with more predictions of a long slow slide coming from a variety of sources.

So why the continued down trend? Several factors that need taking into consideration are:

House prices are still far beyond any historically known relationship to rents or salaries. Yearly rents are 3% of purchase price. whilst mortgage rates are 6.5%, so it costs more than twice as much to borrow money to buy a house than it does simply to rent an equivalent house. Worse, total owner costs including taxes, maintenance, and insurance are about 9%, which is three times the cost of renting. Salaries cannot cover mortgages. Anyone buying property at the moment will suffer an almost instant loss which will likely continue for the next several years. The New York Times has an excellent interactive graph on their website. Link at bottom.
25% of houses bought in 2005 and 2006 were pure speculation, not houses to live in, and the speculators are going into foreclosure in large numbers now. Even the National Association of House Builders admits that “Investor-driven price appreciation looms over some housing markets.”

Stuck with large unsold inventories, builders are dropping prices even faster than owners, fueling the trend. More on this here:

Foreclosures up nearly 100 percent in third quarter (centralvalleybusinesstimes.com)
Foreclosures almost doubled from ‘06 (reuters.com)
Number of U.S. houses facing foreclosure doubles (usatoday.com)
Houseowners coming up short (dailybusinessreview.com)
Prisoners of Debt (businessweek.com)
Counselors stressed out by desperate clients (cnn.com)
8 Cities Record Largest Price Declines on Record (efinancedirectory.com)
More trouble ahead for credit markets (money.cnn.com)
The Next Worry: Bond Insurers (businessweek.com)
Question of Solvency at Citigroup (Mish)
$75 Billion Fund Is Seen as Stopgap
Fed Pumps $41B Into US Financial System (biz.yahoo.com)
Lenders in VA don’t think Fed rate cut will help much (connectionnewspapers.com)
Falling interest rates weaken dollar and cost consumers more (marketwatch.com)
New York state sues Santa Ana mortgage appraisal firm (latimes.com)
Appraisers Pressured to Inflate Home Values, Cuomo Says (nytimes.com)
Real Estate and Organized Crime (patrick.net)
‘Realtor to Stars’ Is Slain on Fifth Avenue (nysun.com)
New York Times Graph (nytimes.com)

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