Another American Real Estate Crash?

In May, property sales and mortgages fell in the United States. This relapse will not last, predicts Jean-Marc Lucas, economist at BNP Paribas, who foresees market stabilization by the end of the year.

Q: Is the American property crash near its end?

A: For the moment, the American property market shows no sign of a real recovery. In the short term, the end of the tax credit, which could be worth up to $8,000 for first time home buyers, has caused the market to drag. Actually, sales of newly developed property fell 32.7 percent in May. Sales of previously developed properties are at the same level they were in September of 2009. Mortgage applications for property acquisition have greatly diminished, and a household study done in June indicated a fall in intentions to purchase houses for the next six months. The result: activity in the construction sector has fallen. Construction permits fell for the second consecutive month in June (a drop of 5.9 percent), while the property market indicator fell five points (from 22 to 17). Effectively, the temporary recovery observed over the two previous months has been undone.

Q: Is this relapse going to last?

A: Probably not. But the market is going to remain fragile. In new property, even though sales have fallen, housing stock has continued to diminish over these past few months. In May, housing stock fell to its lowest point since 1970 – which is encouraging. This shows that developers have adjusted their level of construction to meet the current demands. On the other hand, in the old property sector, the housing stock is following an opposite trend. This is explained particularly by the importance of sales of seized assets. Defaults and seizures reached historical levels in the first quarter of 2010, with respective increases of 10.1 percent and 4.6 percent. That being said, the fall in prices and the current low interest rates have made a new group of buyers creditworthy. A stabilization of the market could be expected by the end of the year.