ST : Property Fear

May 8, 2010

Property Fear

With the global economy recovering from the crisis, property markets are seeing a rebound around the world. The Straits Times bureaus look at whether people are buying and selling - or not - in two of the world's biggest economies.

By Bhagyashree Garekar US CORRESPONDENT

Sales pick up but no room for celebration yet

Jobless rate remains high and govt incentive schemes are ending

WASHINGTON: When Mrs Elaine Kay put up her house for sale last week, she hardly expected it to be snapped up before breakfast on the very first day of its listing.

Her worry now is being able to find a new home in the town she is moving to. 'All the nice ones get taken... like that,' she said, snapping her fingers.

'Sold' signs have been popping up like mushrooms across the capital's leafy

suburbs. For the first time in three years, say local realtors, buyers are showing a new confidence and throwing up multiple offers for properties. Indices tracking sales volumes have also risen.

'We've had a fantastic two months,' said Ms Jane Fairweather, whose brokerage specialises in the Washington Metro Area real estate market.

It is not altogether a surprise that the journey to revival has been a short one in the nation's capital, where there is a concentration of high-wage earners and the impact of the economic crisis was least felt.

The surprise is that signs of revival are showing up across the nation - the northeast, mid-west, south and west.

The bounce, however, has come later than is typical after recessions. In the last seven recessions, housing was one of the first sectors to recover. But since the housing collapse was at the centre of the recession this time, it has picked up only after the economy registered two quarters of growth.

Still, delay aside, the numbers have beat forecasts. In March, sales of new homes across the US surged by 27 per cent - the biggest monthly gain in 47 years. In the south and north-east, sales were even stronger, rising by 43.5 per cent and 35.7 per cent respectively.

Sales of existing homes also rose, by 6.8 per cent, again beating expectations.

Unsurprisingly, the rise in sales has nudged up prices, though not by much. According to the widely followed S&P/Case-Shiller index, home prices in 20 cities rose by 0.6 per cent in February from last year, the first annual gain since December 2006.

This perking up derives from a number of factors.

The most significant is the support from numerous government incentives. They include a home-buyer tax credit, the US$75 billion (S$105 billion) foreclosure prevention plan, the Federal Reserve's US$1.25 trillion programme to drive down mortgage rates, and the US$126 billion stabilisation of mortgage finance companies Fannie Mae and Freddie Mac.

The question is whether the growth will endure as these government incentives wear off.

The Fed programme to buy mortgage- backed securities - pushing down the mortgage rates to record lows - ended in March, while the tax credit expired last week.

But many analysts believe that this will be countered by low home prices and low mortgage rates.

Still, market watchers remain cautious in their predictions. Investor Warren Buffett expects to see a sustainable recovery within a year, while housing analyst David Abromowitz said it depends on the employment situation and the threat from more foreclosures.

'So long as unemployment remains high, and many prospective buyers worry about layoffs or income cutbacks, it seems unlikely that strong demand for homes will return to the market,' he said.

More than 25 per cent of home mortgages, he pointed out, remain 'underwater', or worth more than the market price of the homes.

If some of the 15 million borrowers in this category were to foreclose, the houses would end up with banks which would eventually put them on the market, increasing the supply and thus lowering prices.

Indeed, figures indicate a slow overall recovery, despite the rebound in sales.

Housing prices, which plummeted 33 per cent from their 2006 peak, have gained back only 4 per cent so far.

And construction and other housing-related services remain weak, accounting for just 2.5 per cent of the US economy - sharply down from the 6.3 per cent at the peak of the housing boom.

'We have been through the worst housing market I've ever seen,' said Ms Fairweather, who has been in the real estate business for nearly three decades.

'It will take us at least 10 years to reach the 2005 highs once again.'

bhagya@sph.com.sg