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(JONATHAN ERNST/Jonathan Ernst/Reuters)
(JONATHAN ERNST/Jonathan Ernst/Reuters)

Economy Lab

Why U.S. housing faces double-dip threat Add to ...

The U.S. housing market, that ugly place where the crisis began, is in a double-dip downturn that will still take years to correct, a new report warns.

"It is becoming clear that the housing market cannot stand on its two feet," Capital Economics said in the précis to the report. "House prices are likely to fall steadily over the course of the next 12 months, taking them to a new cycle low. Prices may not regain their previous peak for a decade."

Regaining the peak aside, housing activity alone probably won't rebound "to levels consistent with a healthy market" for at least three years, wrote Paul Dales, U.S. economist for Capital Economics in Toronto.

"A big part of the problem is that the previous sharp falls in prices have left many households with a mortgage worth more than their home," the report warned. "In the second quarter, 23 per cent of all mortgage holders were in negative equity. Half do not have the 20 per cent of positive home equity necessary to qualify for a new mortgage … Millions of Americans simply are unable to move home or refinance."

Even potential buyers who can raise the down payment may not want to buy given the outlook for prices, Capital Economics said. It added, however, that the second dip in prices likely will be "fairly modest" given that double dips tend to be small compared with initial drops.

"Even during the Great Depression, the 7-per-cent fall back in house prices was small compared with the original 30 per cent … On average, double dips in house prices don't last for much longer than a year either."

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