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             US House sales have now hit a ten year low      Dated: 25/07/2008


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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