Overseas Property Blog :: guide to international real estate investment

Knowing — or maybe believing is a better word — that property markets and economies around the world are on the way back up sure is a nice feeling. It may be a short-lived feeling, because according to some there are signs that the short-lived positivity will end as quickly as it begun.

I am not one of the people. Nor am I one of the plastic fantastic optimists that think the only way is up, and that rejoices in reports of UK mortgages doubling, and property in some areas selling for almost the same as it would have at the height of the boom.

The truth is, yes, we are making some headway against the deluge of negative financial news. In fact, a good analogy of the current recession recovery process for me, is a snow plough that has been completely submerged in snow: we have just jumped in and managed to get the engine started, the heat is slowly melting the snow, but we still have a hell of a lot of pushing to do before we clear the drifts.

As you would expect, all the countries of the world are recovering in different ways and at a different pace, depending on the makeup of their economy and the funding and direction of its government’s economic stimulation policies. Nobody knows how strong the recoveries are without the massive injection of cash and stimulation being poured into the world’s markets.

In this series of articles we will profile the G8 nations to track the progress of recovery in their housing markets so far, and attempt to map any possible deep-drifts in the road of stimulus withdrawal ahead.

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

This entry was posted on Friday, December 18th, 2009 at 9:00 am and is filed under International Real Estate Trends, Predictions, United States Property. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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