US
house sales have now hit a ten-year low
US housing is in its third year of hard times, and yet times just keep
getting harder. News from June from the National Association of Realtors
was dreadful. Not only did house sales hit a ten-year low, but the number
of empty properties on the market hit a fresh record. A full 18.6m
properties stood vacant in the past three months, while in June, there was
11.1 months’ supply on the market. A balanced market, the NAR says, is
five to six months’ supply. So in other words, the number of properties
on the market needs to fall in half to just get back to a balanced market.
Meanwhile, well-known bond investor Bill Gross compounded the gloom by
warning that he reckons that banks and brokers will end up writing off $1
trillion over the housing slump. As Bloomberg reports, this would imply
– and bear in mind it’s not even the most pessimistic forecast –
“that credit market losses are less than halfway over.”
And the figure for jobless claims rose by more than expected, to above
400,000, the highest in nearly four months. “You are starting to see a
lot of the problems in the financial area drifting over into more of the
real economy,” said the eagle-eyed Tobias Levkovich of Citigroup.
Financial stocks saw their biggest one-day percentage fall in eight years
as jitters returned after the recent rally.
Why the British housing market won't be perking up any time soon
either
What does all this mean for us? Well, misery in the US is bad news for
everyone. But here in the UK, we’re – if anything – even more
reliant on property to prop up our little economy. And that’s really bad
news, because anyone who thinks that the British housing market will be
perking up any time soon is just deluding themselves.
A telling example was in the Evening Standard yesterday. The paper carried
an interview with Jon Hunt, the former head of one of the most reviled
estate agencies in the UK – and that’s really saying something –
Foxtons.
But having sold Foxtons earlier this year for £370m, he clearly has no
great interest in even attempting to talk up the market. “I’ve been
through two major recessions, in 1972-74 and 1988-1994. This will be the
third.”
How long will the crash go on for? Well, it would be nice, he says, “if
a house drops by 25% one week and comes back the next… But the property
market isn’t like that – it doesn’t go off a cliff and climb back at
the same rate. It goes down rapidly and comes back slowly. In 1988, prices
started falling, they stayed down and it took until 1998 for them to get
back to their 1988 level.”
You may not be keen on the company he spawned, but he’s not daft. Like
any sensible contrarian, he reckons the time to buy is when everyone else
has finally shut up about property and is fed up with the whole topic. And
of course, we’ve got a while to go before that happens.
The Bank of England likes to suggest that the link between property prices
and retail sales is unproven. But they’ll probably be looking at the
figures again after we learned yesterday that June’s slump in retail
sales was the worst since records began in 1986.
Like it or not, this economy is built on houses. And the news for houses
will be surprising on the downside for a good long time to come.
This is a key reason why the rally in banking and housebuilding stocks in
particular, looks “overdone”, as JP Morgan Cazenove said about the
homebuilder sector yesterday.
“The newsflow over the summer and the outlook statements during the
reporting season in late August and early September will take the shine
off the sector again,” said analyst Anthony Codling.
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