WASHINGTON - Not so long ago
in parts of the United States, new homes were often sold before their
foundations could be laid.
But the home boom is now showing clear signs of waning -- and analysts say
that has worrying implications for consumer spending in the world's largest
economy.
Most economists agree that housing demand is likely to slow further in coming
months, after recent interest rate hikes and soaring energy prices. But few are
predicting the abrupt bursting of an overly inflated bubble.
In the past week, a government report highlighted that the number of unsold
new homes on sale across the country swelled to a record high of 566,000 last
month.
And on Friday, an International Monetary Fund report said that US property
prices were "overvalued", just one of the headaches facing Federal Reserve
policymakers.
Homeowners have benefited from double-digit annual rises in their property
values to go on a credit-fuelled spending splurge. But now the picture is
changing.
"Many individuals, who signed a (purchase) contract in what they had believed
was a booming housing market, may now be backing out of those contracts," said
Phillip Neuhart, an economic analyst at Wachovia Securities.
"Thus, the new home market is likely weaker than new home sales reflects," he
said.
Home builders report that sellers are going as far as giving away cars, free
kitchen upgrades and holidays to lure reluctant buyers.
The Commerce Department on Thursday said sales of new US homes declined three
percent in June to a weaker-than-anticipated annualized rate of 1.131 million
units.
News of the latest sales downturn, and the record number of new homes that
are languishing unsold, followed an industry report Wednesday that showed
existing home sales fell 1.3 percent in June.
On Friday, the government said that US economic growth slowed to just 2.5
percent in the three months to June as consumers turned nervous in the face of
sky-high fuel prices and the cooling property market.
Economists are divided on whether the Fed will raise interest rates further
at its August 8 policy meeting, but agree that 17 straight hikes of its key fed
funds rate have squeezed the home market and buyers' enthusiasm.
The rate has now gone up to 5.25 percent, adding to the pain for more recent
home buyers who took out interest-rate-only mortgages in their rush to get on
the property ladder.
University of Maryland business professor Peter Morici said that "recession
risks remain real and apparent".
"With the housing market cooling, consumers are no longer able to use the
equity in their homes to finance ever-larger purchases of clothes, electronics
and other goods and services," he said.
Joel Naroff of Naroff Economic Advisors observed that the number of homes on
the market is up an "astounding" 39 percent since June 2005.
"From the huge jump in the housing inventory, it appears that anyone who has
any hope of getting out has put their home on the market," he said.
Even housing market representatives say that sellers are no longer commanding
the handsome premiums of recent years, as prospective buyers take longer to sign
on the dotted line.
"Relative to the five-year housing boom, this year is a buyers' market in
much of the country," observed David Lereah, the chief economist of the National
Association of Realtors.
The government's latest figures support Lereah's outlook, but prices still
remain stratospheric in some hot urban areas.
The median price for a new home fell 1.6 percent last month to 231,300
dollars from May. But buyers in New York, San Francisco and Washington would be
lucky to find a family home for sale at double that price tag.
