Downturn in housing market worsens

Downturn in housing market worsens
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: August 16 2007 03:00 | Last updated: August 16 2007 03:00


The outlook for the US housing sector worsened on Wednesday as an index of sentiment among housebuilders fell to its lowest level in more than 16 years and estate agents reported prices falling in a third of US cities.

The crisis in the subprime mortgage market contributed to an 11 per cent fall in sales nationwide in the second quarter, according to the National Association of Realtors. The National Association of Home Builders has only once registered a worse mood than that recorded in its latest monthly survey.

David Seiders, chief economist at the NAHB, said conditions were worsening because "problems in the subprime mortgage sector have spilled over to other components of housing finance, including [more mainstream loans]".

Brian Catalde, president of the association, said: "Builders realise that issues related to mortgage credit cost and availability have become more acute, filtering some prospective buyers out of the market and prompting others to delay their decision to purchase a new home."

A cutback in construction is viewed as necessary by many economists to reduce an oversupply of new homes on the market.

Abiel Reinhart, an analyst at JPMorgan, said: "In response to these problems, builders will almost certainly further reduce starts, cut prices, and offer non-price incentives."

But Michael Feroli, a former Federal Reserve official, said worsening credit conditions could mean that the supply of new homes might need to go "quite a bit lower" than thought.

A further sharp downturn in construction could have a negative impact on consumer sentiment and economic growth.

Wal-Mart, the world's largest retailer, said this week the housing downturn and tightening credit conditions were having an impact on shoppers.

While prices fell slightly nationwide, according to the NAR, many of the big falls were in Florida, where former bubble markets such as Palm Bay and Sarasota saw double-digit declines. The biggest drop was in Elmira, New York, which has been hit by manufacturing job losses and saw house prices drop 17.9 per cent.

Price rises were pronounced in the west, with homes appreciating by 21.9 per cent in Salt Lake City, Utah.

The best and worst markets

House price rises in second quarter

Salt Lake City, Utah

+21.9%

Binghamton, New York

+19.8%

Salem, Oregon

+16.7%

Farmington, New Mexico

+14%

Allentown, Pennsylvania

+12.8%

House price declines in second quarter

Elmira, New York

-17.9%

Palm Bay, Florida

-15%

Sarasota, Florida

-11.3%

Davenport, Iowa

-11.3%

Daytona Beach, Florida

-8.3%

Source: Natl Assoc of Realtors