HOUSE prices are set to drop in the US for the first time on record, US investment bank Goldman Sachs warned this weekend.
Prices in several segments of the market have already started to fall, and the overall market will move into the red even in nominal terms next year, fuelling fears that this will trigger a downturn in consumer spending and hit an already slowing US economy.
Jan Hatzius, economist at Goldman Sachs, said: “The risk is rising that nominal US home prices may be headed for an outright decline in 2007. It would be the first decline in national home prices ever recorded, at least in nominal terms.”
But the biggest problem on the horizon is the swelling backlog of unsold homes: an eight-year-high of 6.3 months for existing homes and 6.1 months for new homes.
David Rosenberg, chief North American economist at Merrill Lynch, said there are 4.3 million condo and single-family homes for sale in the United States, up 37% on the year.
“Every boom, mania and bubble follows the same path,” Mr. Rosenberg said.
“What has undone everyone of these back to the tulips in the 17th century is a massive accumulation of unsold inventory once you’re past the peak of the cycle, and that’s exactly where you are with the U.S. real estate industry.”
The housing industry has been a linchpin of the U.S. economy since the tech crash and the 2001 recession.
The U.S. Federal Reserve slashed interest rates to 1% to rescue the economy but fuelled a building frenzy, especially in Florida, California, Las Vegas and parts of the East Coast.
The construction industry has accounted for more than a third of overall job growth in the past three years, Mr. Rosenberg said.
Flip this house show was just on. Some ‘Flipper’ in California had purchased a house for $540K. The house was 980 square feet, all torn up and mold everywhere. When the demolition started, they found walls that were just thin plywood covered with wallpaper, no sheetrock. Anyway, the guy puts $80K into fixing it up and puts it on the market for $749K. I guess I don’t understand the west coast and the weather tax, but man, that is a TON of money for 980 SF house, even with the upgrades done to it. To me it looked like it was worth around $100K max. Of course I know what it takes to build a house, so it makes me wonder how the heck the prices have gotten so crazy hight. Anyway, as long as buyers are willing to pay rediculous prices for something, it will keep selling. But I guess at some point the product (house) gets out of reach in price, then something has to give. Sorry if I am all off topic.
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