US economy poised for recovery, led by turnaround in housing: Stephen Koukoulas
Page 1 of 2
It is getting easier to believe that the US economy is poised for a decent recovery and that growth could even be strong in 2013. A key reason for what is finally an optimistic outlook is housing.
The run of recent housing data is pointing to a convincing upswing with prices, new activity and builder confidence all rising. Low interest rates – supported by almost four years of the Fed’s zero interest rate policy and now three rounds of quantitative easing – are clearly key drivers of this upswing, but the US is also assisted by very favourable demographics that includes annual population growth of around 2.5 million people.
Until 2007, the US was in the middle of a housing construction boom to the point where there was a horrendous glut of unsold houses on the market. It was inevitable that a housing construction downturn would occur, but that fall was compounded by all the ills in the banking sector and a sky-rocketing unemployment rate.
From peak levels, house prices in the US fell by around 35% – in some states, the falls were more than 50%. The number of housing starts reached a peak annualised level of around 2 million in the period 2004 to 2006, but then fell by around 80% to a level below 500,000.
A widely watched survey of home builders confidence fell from 65 points to a low of 13, with readings above 50 consistent with expansion in the sector. Housing construction as a share of GDP fell from a peak around 6% in 2007 to an all-time low to be just over 2% now.
It was a disaster and the housing depression was perhaps the most obvious symptom of the US recession.
This housing slump caused the banks to lock in large losses as foreclosures escalated. In addition to losing money that prompted the partial nationalisation of many of the “too big to fail” institutions, the banks went on a lending freeze, unwilling to add more risky mortgages to their already damaged balance sheets.
Those home owners who did not hand back their keys to the bank were left with negative equity in their houses, and this wealth destruction and job insecurity caused consumer spending to remain subdued.
That’s the bad news that appears to be slipping back in history.
The Mark at Sydney's Central Park
The best of everything at Portside Wharf
Before you buy a property in a development with an owners' corporation, it’s essential to understand your potential financial liabilities and other responsibilities as a member.
Commercial Property Search
Brought to you by: Caydon
Atria Apartments in Hawthorn offers buyers an opportunity to invest in one of Melbourne’s finest suburbs.
Westfield’s Frank Lowy rises above Ivan Glasenberg as second richest Australian with Meriton’s Harry Triguboff up to sixth richest on 2013 BRW Rich list