Recovery Distressingly Slow

Source : The Straits Times, June 20, 2009

US HOUSING

NEW YORK - A "DISTRESSING SLOW" US housing recovery, with inflation-adjusted home values expected to decline over the next five years, makes it unlikely that housing wealth will drive consumer spending in the next decade, a Reuters/University of Michigan survey found.

A real estate sales sign sits outside of a house for sale in Phoenix, Arizona in this June 2, 2009 file photo. -- PHOTO: REUTERS

Consumers are apt to maintain their renewed emphasis on savings and paring debt, Richard Curtin, director of the survey, said in a June home price update on Friday.

Housing wealth changes have a lagged impact on spending, and the influence of declines seen in 2008 will depress growth in consumer spending in 2009 and 2010, the survey said.

"To be sure, refinancing has reduced the burden of mortgage payments, giving consumers more discretionary income, but the refinancing impact on spending will fade as mortgage rates increase," Mr Curtin said. "Moreover, conventional refinancing is largely limited to consumers whose home is worth about 20 per cent more than their current outstanding mortgage."

The pool of those homeowners is fast shrinking with each month that home prices sink. On average, home prices nationally have slumped by more than 32 per cent from mid-2006 highs, based on Standard & Poor's/Case-Shiller indexes.

Sixty per cent of homeowners reported home price declines in the second quarter Reuters/University of Michigan surveys. The share of those reporting losses was greatest in the West, at 77 per cent, and least in the South, at 51 per cent.

Some signs of sentiment improvement emerged in the second quarter. Just 22 per cent of those surveyed expected price declines in the year ahead, the lowest share since 2007.

The share of homeowners reporting price declines in the past year and expected further erosion in the year ahead fell to 28 per cent in the second quarter from 35 per cent in the first quarter and 43 per cent a year ago.

"Declines in prices have prompted consumers to view home buying conditions much more favorably, but those same price declines have prompted the least favourable assessments of home selling conditions ever recorded," Mr Curtin said.

Most home buyers are also sellers. As a result, many potential transactions are thwarted because the reluctance to sell at a "loss" is seen as greater than the advantage of the buying at a reduced price, he said. -- REUTERS