Home' Trinidad and Tobago Guardian : November 28th 2013 Contents NOVEMBER 2013 • WEEK FOUR www.guardian.co.tt BUSINESS GUARDIAN
THE ECONOMIST | BG27
The city that proved that America s housing market is rising
from the ashes was, fittingly, Phoenix.
From property-bubble peak to post-financial crisis trough,
home prices in Arizona s biggest metropolis plunged by more
than half, as demand dried up and foreclosures soared. Low
interest rates and slowly reviving consumer confidence, however,
plus a bunch of private-equity firms convinced that there was
an opportunity in buying up homes cheaply, eventually brought
the market back to life. By September the median sale price
of a single-family home in the Greater Phoenix area was
US$199,000, up 33 per cent in a year.
Not all the recent signs from Phoenix have been positive,
though. Initially house prices and sales rose together. According
to a recent report by the Center for Real Estate Theory and
Practice at Arizona State University, however, they have started
to diverge. In September the number of single-family homes
sold was 9 percent lower than in the same month a year earlier,
and sales of town houses and condos were flat. Since July the
Greater Phoenix market has "cooled dramatically," thanks to
a steep fall in demand.
In 2014, the report predicted, prices will rise more slowly
than the "furious pace we have witnessed over the past two
A similar picture is emerging elsewhere, especially in cities
where price and sales growth had been strong. The monthly
index of housing conditions published by the National Asso-
ciation of Home Builders and the bank Wells Fargo, published
on November 18, was flat since October and down from 59
in July to 54 now. That is slightly positive: A score of 50 would
mean that builders were evenly divided as to whether conditions
are good or bad.
The Case-Shiller index, which tracks house prices in 20 big
cities across America, reported year-on-year price growth of
12.8 percent in August, but also noted an abrupt slowing of
the monthly rate of growth as 16 of those cities reported more
modest price increases in August than in July.
In October the Federal Reserve noted that the "recovery in
the housing sector slowed somewhat in recent months." This
set the stage for the release of data on November. 20 that
showed a sharp 3.2-percent fall in sales of existing homes in
This is probably evidence of "stalling, rather than a reversal,"
says Jim O Sullivan of High Frequency Economics, a research
firm. Would-be buyers are coming to terms with costlier mort-
gages, and long-term mortgage-interest rates are up by a per-
centage point since the early summer.
That can be a drain on a tight household budget. The hous-
ing-affordability index published by the National Association
of Realtors, which combines average mortgage costs, average
home prices and average family income, is down to 164 from
a high of 214 in January, which is significant. Still, housing
remains far more affordable than the historic average of around
125, which means that the recovery is likely to pick up before
long, O Sullivan says.
What effect will this slowdown have on builders? Previous
busts have taught them to control the inventory of new prop-
erties coming to the market. If they react abruptly to falling
sales by building less, the housing market may be "on the
verge of a significant correction," argues Ian Shepherdson of
Pantheon Macroeconomics. Although residential construction
is only three per cent of GDP, in each of the past five quarters
it has contributed around a quarter of America s economic
If residential construction turns down, Shepherdson, asks,
where else will growth come from? Corporate America seems
to be hunkering down and curbing capital spending. Exports?
Maybe. Higher consumption? Probably not while housing is
losing momentum. Government spending seems unlikely to
come to the rescue, even if the politicians behave themselves.
With luck, signs of a weaker housing market will concentrate
minds in Washington as the next decision on the debt ceiling
@2013 Economist Newspaper Ltd. (Distributed by the New York
Home truths: A surprisingly shaky recovery
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