Housing will grow slowly after free-fall, says expert

Factors cited include price plunge, interest rate fall, govt boost, credit

Published September 30, 2010


(NEW YORK) The US housing market has reached its lows and will expand slowly as the economic recovery remains subdued, said the S&P/Case-Shiller index co-creator Karl Case.

The index of property values in 20 US cities increased 3.2 per cent in July from 12 months earlier, the smallest year-over-year gain since March.

The gauge is a three- month average, which means the July data are still being influenced by transactions in May and June that may have benefited from the government homebuyer tax credit incentive.

'It's bouncing along the bottom, it stopped that free-fall,' Prof Case said in an interview on Tuesday on 'Bloomberg Surveillance' with Tom Keene. 'The combination of the tremendous drop in prices, the fall in interest rates, the government going all in and buying mortgage-backed securities to keep mortgage rates low, and the credit, of course - it's not surprising that it's come to an end.'

A government tax credit of as much as US$8,000 gave housing a temporary lift in late 2009 and early this year. The incentive required contracts be signed by the end of April and closed by June. The closing deadline has since been extended to the end of this month.

'I don't think anybody is predicting that it's going to go up very much in the next couple of years unless we see a resurgence of economic growth,' said Prof Case, professor emeritus of economics at Wellesley College in Wellesley, Massachusetts. Prof Case and Robert Shiller, a Yale University professor, created the index based on research from the 1980s.

The Obama administration said last month it planned to announce a proposal for an emergency loan programme to help the unemployed avoid default. The plan would also include a government mortgage refinancing effort to lower monthly mortgage payments for Americans facing foreclosure. -- Bloomberg


Source: http://www.businesstimes.com.sg