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  9. Is The Us Property Market Really Back On Track?
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Is The Us Property Market Really Back On Track?

September 2009
Source: news.xinhuanet.com

The U.S. housing market, which triggered the current financial crisis and global recession, has shown further signs of stabilization according to recent data.

As the economy is widely considered on the way of recovery, the focus of the U.S. housing market is that whether it is on a sustainable upturn or just getting strength of another bubble.

Data Indicates Stabilization
The housing sector, a key driver of past recoveries, is in the third year of a slump. But there are signs that this sector is bottoming out. U.S. housing construction in August increased to the highest level in nine months, new government data showed on Thursday.

The Commerce Department said that privately-owned housing starts to rise at a seasonally adjusted annual rate of 1.5 percent to 598,000 last month. Analysts said the increase demonstrates that the building industry's recovery from the housing bust is likely to strengthen.

"A clear uptrend is emerging" in single-family homes, Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients.

New-home construction could rise further in the next few months as builders respond to greater demand from first-time buyers for smaller homes, he added.

The National Association of Home Builders (NAHB) said Wednesday its housing market index rose in September for the third month in a row, reflecting growing optimism in the industry about rising home sales.

The Washington-based trade association said its index rose one point to 19, its highest reading since it hit 20 in April last year. The latest NAHB index reflects a survey of 533 residential developers nationwide.

Home prices increase in nearly all major U.S. cities. The latest released Case-Schiller index, the most closely watched 20-city composite home price index, rose in June.

The housing sector "is likely to start adding to growth rather than holding back the economy," said Joel Naroff, chief economist at Naroff Economic Advisors.

Reasons Behind Improvement
The improvement of the real estate market is a combination of many factors: the macroeconomic situation improvement, low interest rates, federal and local government assistance for first-time buyers, and the rule of the market itself.

Firstly, it is widely agreed that the U.S. economic recovery from the worst recession after the 1930s depression is emerging.

Federal Reserve Chairman Ben Bernanke said Tuesday that the recession was "very likely over," as consumers showed some of the first tangible signs of spending.

Bernanke said for the first time that forecasters agree "at this point that we are in a recovery."

His remarks, made after a speech at the Washington-based think tank Brookings Institution to mark the first anniversary of the collapse of Lehman Brothers, came just after the Commerce Department reported retail sales climbed 2.7 percent in August after falling 0.2 percent in July.

The Fed has been keeping the federal fund interest rate, the core rate for inter bank borrowing, at historic low, which is zero to 0.25 percent since late last year. That keeps the mortgage rate at low level to lure home buyers.

Secondly, the stimulus package for the housing market has been working. Home sales have been buoyed by a federal tax credit that covers 10 percent of a home price up to 8,000 U.S. dollars for first-time buyers.

More importantly, experts see the rule of market as the fundamental factor of the recovery of the housing industry.

"The U.S. housing market has its own boom-bust cycle, which is about 15 years each," said Yingying Li, a broker of the Virginia-based Long and Foster Real Estate, in an interview with Xinhua.

"The price bottom of the market was at the beginning of this year. Now the consumers' sentiment is much better than a year ago when the market was in a panic," she said.

Besides, she noted that the 2008 bubble has a lot to do with the media frenzy and the repetition of the same news that made people believe it is the worst of their lives and almost the end of the world.

"Psychological damage was more severe than the loss of wealth," Li added. "Now people are not panic any more and it is becoming the seller's market."

Recovery Remains Challenging
There is little doubt that the market has picked up. The debateis now shifting to whether the upturn can be sustained.

Analysts note that some sales are probably due to a rush to buy in advance of the December expiration of an 8,000 dollar first-time buyers' tax credit. The National Association of Realtors is lobbying to have the credit extended or broadened, but neither is a sure thing.

"There are unintended effects that could hurt the market," said Patrick Newport, an economist for IHS Global Insight. "It's stimulating construction, but we have too many homes already."

The tentative improvements in housing are most likely a rebound" from unsustainable weak results ... reinforced by a temporary boost to demand" from the first-time home buyer tax credit that will end on Nov. 30, Joshua Shapiro, chief economist at MFR Inc., wrote in a note to clients.

"Gains from here on will probably be much more difficult to achieve" due to high unemployment, tight credit and the large number of homes already on the market, he said.

Real estate analysts said that tight lending standards for borrowers and builders could threaten the real estate recovery.

Foreclosures are another big unknown. Prices were pushed down last year by an abundance of bank-owned properties hitting the market. With unemployment nearing 10 percent, there are probably more foreclosures to come.

The economic recovery still remains fragile with uncertainties. Bernanke said, "Even though from a technical perspective the recession is very likely over at this point, it is still going to feel like a very weak economy for some time as many people still find their job security and their employment status is not what they wish it was."

The jobless rate is widely expected to peak next year above 10 percent, up from its current 9.7 percent.

The Group of 20, at its upcoming meeting in Pittsburgh, is expected to address ways to keep sustainable growth of the world economy and to avoid future crisis. However, economists say the leaders may not completely defeat human nature.

"Ultimately, bubbles are a human phenomenon," said Robert Schiller, a Yale economics professor.

In the long run, the "irrational exuberance" as the former Fed Chairman Alan Greenspan put it, seems unavoidable.

"It is not the first time of a housing bubble bust, and I bet it will not be the last time," Li observed.