By: Dr. Mike Campbell
Figures just released show that the average US house price declined by 5.2% in February; taking the average house price to the lowest value it has seen in nine years. The typical home in the USA now costs $156 100 (approximately £96000). According to the National Association of Realtors, the number of previously owned homes sold in the USA has slumped to an annualised figure of 4.88 million last month from a level of 5.4 million in January. Under normal economic circumstances, more than 6 million existing (rather than newly built) homes are sold in the USA each year.
The unsold housing stock in the USA is believed to be suppressing the house price since supply is outstripping demand. The figure of unsold homes stood at approximately 3.5 million in February. Over the course of the financial crisis, millions of homes have been repossessed as occupiers have been unable to make mortgage repayments. This, too, is credited with depressing the house price.
Although recent months have seen a decline in the unemployment figures, many Americans are still worried about job security and so will be reluctant to take on the financial burden of buying a home if they are currently in rented accommodation.
In a separate development, the Federal Reserve has announced that it will start off-loading mortgage securities that it purchased at the height of the global financial crisis. It will sell off $142 billion in mortgage based assets in $10 billion monthly lots. The revenue will be used to reduce the US budget deficit and it is expected that the sale will generate profits of between $15 and 20 billion. The assets were acquired in 2008 and 2009 at the worst part of the housing slump when investors had lost confidence in mortgage-based securities as a mechanism of restoring confidence and stemming a potential collapse in the house price.