May Never See A Recovery

Sales of newly built U.S. single-family homes fell unexpectedly in December, data from the Commerce Department showed Wednesday. Sales fell 7.6 percent to a 342,000 unit annual rate from an upwardly revised 370,000 units in November. It was the second straight month that new home sales declined.

“It could take up to a decade for many homeowners to regain equity in their homes, while some people in the hardest-hit regions of the country may not see a recovery during their lifetime.”

Brent T. White

(Article in English, link to press release)

Analysts polled by Reuters had expected new home sales to increase to a 370,000 unit annual pace from November’s previously reported 355,000 units.

New home sales for the whole of 2009 fell 22.9 percent to a record low 374,000 units, the department said.

The latest indication that the government-led housing recovery might be losing some steam.

The housing market recovery is showing some signs of fatigue after a surge in sales as first-time buyers rushed to take advantage of a popular tax credit, which had been scheduled to expire in November.

It has since been expanded and extended until June this year and while analysts expect home sales to pick up as a result, they reckon the pace will not be as strong as witnessed with the initial tax credit.

The housing market was the main catalyst of the most painful downturn in 70 years and renewed weakness could hobble the economic recovery.

The number of new homes on the market last month dropped 1.7 percent to 231,000 units, the lowest level since April 1971. However, December’s weak sales pace left the supply of homes available for sale at 8.1 months’ worth, the highest since June 2009, from 7.6 months in November.

May Never See a Recovery

Even as the housing market shows signs of improvement, including in new data released Tuesday, economists warn that it could take up to a decade for many homeowners to regain equity in their homes, while some people in the hardest-hit regions of the country may not see a recovery during their lifetime.

“What are we going to do down the road when people who should have been saving for retirement, or college funds, are spending that money instead staying current on their underwater home?” says Brent T. White, a University of Arizona law school professor who has studied underwater borrowers.

“We’re just not convinced that the housing market can stand on its own two feet without the fiscal support of the tax credit,” says Paul Dales, an economist for Capital Economics, a research firm.

“There is no clear sign of a sustained, broad-based recovery,” says David Blitzer, chairman of S&P’s index committee.

Even after the housing market stabilizes, it will take years for some owners to see the value of their homes appreciate. About 25 percent of homeowners owe more than their home is worth, according to data from First American CoreLogic, a research firm.

While it has historically taken five to 10 years for home prices to regain losses after a major downturn, analysts says, it is likely to take much longer this time, particularly in parts of the country that have seen the steepest declines.

“In California, Florida, in the ground-zero zones, it could take 15 years to fully recover,” says Lawrence Yun, chief economist for the National Association of Realtors.

Press Release.


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Filed under International Econnomic Politics, National Economic Politics