Apartment for price of car
Fancy a one-bed condo on the outskirts of Boca Raton, an affluent community on the Atlantic Coast of Florida? They are almost giving them away - with auction prices falling to as little as £20,000...
Judging by a New York Times article, anyone who believes the worst of the US housing market slump is over should think again.
At auctions in Washington and Miami, the New York Times reporter found properties that have collapsed in value.
A four-bed, two-car-garage family home in rural Maryland that went for £383,000 only last year sold at auction for £255,000. A two-bedder that sold for £123,800 last July fetched just £78,000.
The report's conclusion? That massive excess supply of housing in the US means that prices still have further to fall. It quotes a Goldman Sachs report suggesting prices in Miami will sag a further 33 per cent - which, given they are already 50 per cent of their 2006 peak, is a pretty extraordinary forecast.
Today, the Case-Shiller index of US home prices (Americans say home, we say house - and that distinction says a lot in itself) dropped at a lower pace in February than in January.
But the "improvement", such as it was, is minimal. Prices decreased at a rate of 18.6 per cent, compared to 19 per cent in January. US Government tax credits for first-time buyers are one support for sales, but this is offset by fast-rising unemployment.
"For the first time since the measure started dropping in 2007, the 20-city index didn't post a record year-over-year decline in February," says Bloomberg. But it noted that a total of 803,489 properties received a default of auction notice or were seized in the first quarter of 2009, the highest since records began four years ago.
But why should we care about what happens to US house prices? The sad truth is that what happens in Boca Raton and places like it across Florida and California are fundamentally important not just to us but to the entire world economy.
It's easy to forget how the credit crunch started: it was when banks woke up to the fact that the colossal number of triple-A rated securities they were holding were actually parcels of US sub-prime mortgages which might have almost no value.
Virtually every investment manager I speak to says that until these securities can be properly valued a floor cannot be put on the banks' losses. And they can't be properly valued until US property prices stop falling, which going by this report there are few signs of that.
On this side of the Atlantic, bank lending volumes won't begin expanding again until the huge losses on US real estate are disgorged. So we can forget a UK recovery until we see at least the start of one in the US.
The growing optimism of recent months was punctured yesterday by figures from the British Bankers' Association which showed the number of mortgages approved for house purchases by banks fell by seven per cent in March.
The property pushers were quick to describe it as a temporary blip in the recovery, but it indicates that getting a mortgage remains an uphill struggle for buyers.
We have become so accustomed to seeing housing from the demand side - the numbers of buyers, population pressure, etc - that we forget the simple lesson from the supply side: that prices can't rise if buyers can't find the finance to bid them up. And while the banks remain reluctant to lend, it is likely that any talk of recovery will remain premature.
Source: www.guardian.co.uk