US housebuilding slump

US housebuilding slump
Published: 30 August 2006

Optimism among US house builders has fallen to its lowest level in 15 years, the latest sign that a once booming market has now slowed sharply. The National Association of Home Builders’ index of sentiment fell seven points to 32 in July, its lowest level since February 1991. Analysts said the housing market has cooled as interest rates have continued to rise, making mortgages more costly. US interest rates were held at 5.25 per cent in August after 20 consecutive increases.

While the Federal Reserve’s main aim for the increases was to keep general inflationary pressures under control as the US economy grew, it also cautioned last year that an overheating housing market was a specific concern. Its comments came after the US housing market has boomed in recent years, aided by both the growing economy and low interest rates.

David Seiders, chief economist of the National Association of Home Builders, said his members faced a "pretty tough battle at the moment". He added that home buyers are "adopting a ’wait-and-see’ attitude because of uncertainty about where the housing market is headed".

Separate US figures showed that sales of existing homes fell nationwide to an annual rate of 6.693 million units in the April to June quarter, down 7.5 per cent on the same period last year. The declines were led by the formerly booming states Arizona, Florida and California.

At the start of the year analysts noted the US housing market was one of the possible casualties in 2006, but that the main impacts of any slowdown would likely only be fully evident in 2007. Eight months on, and it is clear that the housing market is losing momentum. One of the most dramatic declines has been seen in residential building permits, which have been on an upward trajectory since 1991, but which in July were 22 per cent below their peak level recorded in September 2005.