Across the Anglo Saxon World the housing market seems to follow the sun. The cycle tends to kick off Down Under followed by the UK some 12 to 18 months later, with Uncle Sam’s market coming last. If we want to know what is going to happen, then a look at the market in Australia gives a good indicator, while in the US they often take a look at the British market.
Except, that is, for this. While the UK has got away with a soft landing - so far - talk of a crash is getting more urgent on either side of the Pacific pond.
According to a recent article in Sydney Morning Herald house prices are falling. The article cited as an example a property in Sydney which recently sold for $260,000, 42 percent less than it was bought for in 2003.
Meanwhile, this weekend, the Observer business section led with the headline “US housing slump fuels crash fears.” It focused on a report saying that the number of new homes sold in July were 22 percent down on a year earlier, and quoted Paul Ashworth, chief Us economist from Capital Economics who said “Freefall is a strong word, but I think it’s the right one to use here.”
In fact, economists are beginning to bandy about a nasty word when describing the US economy at the moment: recession. The same Observer report also referred to a recent prediction from Stephen Roach, chief economist from Morgan Stanley who reckons US growth will drop by 2 percentage points next year, thanks to the weak US property market. In the second quarter of this year, the US economy expanded by an annual rate of just 2.5 percent, which was half the rate enjoyed in the previous quarter. A further 2 percent off that, and the US will be dangerously close to experiencing the R word again.
These worrying sentiments, are not just restricted to Morgan Stanley. Liz Ann Sonders, chief investment strategist at Charles Schwab Co. in New York reckons the chances of a US recession next year are 50-50.
A US slow down was always inevitable. The US consumer could not possibly continue to prop up the global economy by spending borrowed money for much longer. The hope was that as the US took its feet off the consumer spending pedal, Japan and the EU would take up the slack. But recent evidence suggests that even the Eurozone recovery seems to be slowing.
We will report on the latest data when it is available, but the fear has to be we are returning to an environment of sluggish growth and rising inflation. That would spell an era of higher interest rates at a time when the economy badly needs lower interest to kick start demand.
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