The gloom enveloping the US housing market intensified on Tuesday as home prices dropped at the fastest annual rate since records began 20 years ago.
The Standard & Poor’s/Case Shiller national house price index fell 14.1 per cent in the first quarter of this year, compared with the same period a year earlier, a decline that threatens to delay any recovery in the broader economy.
Recent data, including the latest jobs report, have painted a picture of a domestic economy that is slowing but not yet in recession territory, a point that may gain further ground on Thursday when the US government is expected to revise higher its initial estimate of first quarter economic growth.
But US consumers do not seem to be getting the message. Consumer confidence plumbed a 16-year low this month, as rising food and petrol prices combined with the housing slump to dampen expectations.
The consumer confidence index produced by Conference Board, the research body, fell to 57.2 in May from 62.8 last month, the lowest reading since October 1992.
This blow to consumer sentiment could cause spending to weaken further in the coming months in spite of the boost from more than $110bn in tax rebate cheques, the first of which began arriving this month. “Plainly, the pending tax rebates are viewed as a one-off and not enough to offset a slew of other negative factors,” said Alan Ruskin, strategist at RBS Greenwich Capital.
In an an interview with the Financial Times this week, Alan Greenspan, former chairman of the Federal Reserve, said house prices would fall by another 10 per cent from their February levels, for a total peak-to-trough decline of about 25 per cent.
The S&P/Case Shiller 10-city composite index fell a record 15.3 per cent in March compared with a year earlier, while the broader 20-city index fell by 14.4 per cent. Of scant consolation was a slight slowing in the pace of month-on-month price declines and an in-crease in prices in two metropolitan areas, Charlotte and Dallas.
House price depreciation remains most acute in areas that bore the brunt of a speculative property boom earlier this decade. Las Vegas, for example, recorded an annual drop of 25.9 per cent in March. “The steep downturn in residential real estate continues,” said David Blitzer, chairman of the index committee at Standard & Poor’s. “There are very few silver linings that one can see in the data.”
New home sales rose by 3.3 per cent in April to a 526,000 annual rate but the improvement owed much to a sharp downward revision in the previous month’s figures. On an annual basis new home sales have fallen by 42 per cent, the most in almost 27 years.