Part I: America
In the last few months, the positive data has been rolling in on the American housing market; price increases, rises in new home starts and rising transaction volumes, including a somewhat astonishing 10.1% increase in home re-sales between September and October.
However, like with every almost everywhere, everything can be put down to the low interest rates and government incentives to buy a house and generally spend money. The tax incentives for first time buyers has just been extended to April, at which point the housing market will have to stand on its own two feet — unless it is extended again. Many analysts think this could spark the end of price rises and a restart to depression.
A good sign however is in the recent data from the automobile industry. It has been doing well because of the government cash-for-clunkers scheme. The scheme ended in October, yet analysts surveyed by Bloomberg still forecast a year on year rise in automobile sales for November. The analysts surveyed by Bloomberg have not been wrong in any article I have read so far.
This will instill hope that the foundations of recovery have been laid by the stimulus, and that the slow recovery can continue after it is removed.
However, the housing market is reliant on credit conditions easing, and on employment rising, or at least stopping falling, and also on wages rising.
There are currently thousands of US homeowners falling into arrears and likely to be repossessed if they cannot find a job soon. There are many more thousands only able to continue paying their mortgage one or multiple salaries or income-flows down, because of the record low interest rates. These too will likely face repossession when the government starts putting interest rates back up.
Such major increases in supplies of cheap properties, will almost certainly turn the price rises into falls when the government stimulus ends — if not before from the first group.
The number of potential repossessions will begin to fall as soon as the labour market starts to improve.
This of course will be helped by a de-restriction of the mortgage market, so that people can refinance for better deals.
What we also need to see is a significant increase in demand, which will offset the damage done by the repossessions. This will again rely on significant increases in the availability and security of employment and the availability of finance.
Spot a pattern here? Yes; the future of the US housing market post-stimulus relies on a significant increase in the availability of finance and jobs.
The availability of finance is gradually improving as the world stock markets become more profitable. But even the availability of finance is hindered by the labour market; the amount of finance the banks will provide will always be determined by the deposits and loan repayments people are making, which will of course grow as the labour market improves.
So, really it all relies on the labour market. Unfortunately unemployment is still rising. The unemployment rate in the U.S. jumped to 10.2 percent in October, the highest level since 1983. The government is determined to turn this around as soon as possible though.
The figures prompted Obama– having recently signed a bill extending jobless benefits — to promise new measures to find jobs for some of the 15.7 million unemployed Americans.
“My economic team is looking at ideas such as additional investments in our aging roads and bridges, incentives to encourage families and business to make buildings more energy efficient,” additional tax cuts, and more steps to ease the flow of credit to small business and promote exports, he said in a recent statement from the White House.
In fact it was also the rise in unemployment in October that led to the extension of the tax incentives for first time home buyers; it wasn’t for the housing market it was for the jobs it holds and may create.
So, it is the job market we must all be watching. If the government incentives can successfully bring sufficient recovery to the economy that employment starts rising before April, then maybe the housing market will be able to hold on long enough to survive till recovery proper without any further falls.
This article written by Liam Bailey of Property-Abroad.com