Thursday, April 2, 2009

US property prices down 29% and still falling fast

US property prices down 29pc and still falling fast

US house prices have fallen 29pc from their peak and are still tumbling at the fastest rate on record, according the closely watched Case-Shiller index.

By Ambrose Evans-Pritchard

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The latest figures dash hopes that emergency action by the US Federal Reserve over the winter would at least slow the pace of decline.

Prices dropped 19pc in the 20 largest cities in the year to January, with an accelerating downward lurch during the first weeks of 2009.

There was a flicker of life last week when the National Association of Realtors reported a 5.1pc rise in sales of existing homes in February, a sign that overhang of foreclosed houses is slowly starting to clear – especially on the West Coast.

Anecdotal reports hint at a burst of sales in March, helped by an $8,000 tax credit for first-time buyers.

Chris Whalen, from Institutional Risk Analytics, said the crisis is spreading from bubble zones such as Arizona and Florida into rock-solid neighbourhoods in the East. It is also climbing up the credit ladder.

"Sub-prime has peaked in terms of loss rates but the problem now is prime property, and commercial real estate is falling off the table," he said.

There is concern that delayed time bombs on Alt-A (one notch above sub-prime) and Option-ARM "teaser" mortgages offered in the final phase of the boom have yet to detonate. The upward resets are heavily clustered in 2009 to 2010, although Fed policy should cushion the blow.

The Fed began buying mortgage securities in November to force down borrowing costs. Rates on the standard 30-year home loan have dropped from 6.5pc to 4.93pc, helped further by the Fed's mass purchase of Treasury bonds – considered the "nuclear" option in the central bank arsenal.

While this has led to a wave of refinancing at lower rates – potentially worth an extra $100bn (£70bn) in stimulus – the benefits have yet to reach those likely to default or face a distress sale because any homeowner nearing negative equity cannot refinance.

SMR Research says 22.4pc of all US homeowners with mortgages are underwater, in part because they extracted home equity to pay for cars and college fees during the bubble. California alone has 1.9m borrowers in negative equity.

The Obama administration is pushing through a $75bn plan to slow foreclosures but is in a race against time as lay-offs accelerate.

The OECD said on Tuesday that US unemployment would reach 10.5pc by the end of next year.

The worst price falls over the past year have been in Phoenix (-34pc), Las Vegas (-33pc) and San Francisco (-31pc). Surprisingly, prices fell just 4.3pc in Detroit, the heart of America's blighted car industry. Phoenix prices have dropped 49pc since peaking in June 2006.

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