FYI | Apr 14 2008
By Chris Shaw
In what is almost the reverse of the situation in Australia where too few homes means housing affordability continues to decline the US housing market is currently in the position of seeing affordability improve as both house prices and interest rates move progressively lower at the same time as sentiment continues to decline.
Westpac senior economist Justin Smirk notes US housing market affordability has improved on all measures, as evidenced by the Case-Shiller index having fallen around 13% from its peak and established house prices being down around 15% from their peak, both measures peaking around 2006.
This fall in prices is helping rid the US market of excess stock, with new stock having declined from a peak of close to 600,000 units in 2006 to less than 500,000 units now, but Smirk notes the market expects this level of excess stock to fall further before the US housing market reaches a bottom.
Smirk suggests these expectations of further prices falls as the market attempts to clear the current stock overhang is stopping the market from settling, as buyers feel little pressure to step up now when the outlook is for prices to fall further in coming months.
While at some point the improved affordability of housing means buyers will return Smirk’s analysis suggests it will require a turnaround in sentiment before the US housing crisis can be considered to have run its course and as yet there are few if any signs such a turnaround is imminent.
