The U.S. housing slowdown is more severe than is being suggested and prices could fall another 10 per cent from current levels, according to National Bank Financial.
The U.S. National Association of Realtors said Monday that sales of previously-owned homes fell 0.5 per cent in August to a seasonally adjusted annual rate of 6.3 million units — the lowest since early 2004.
In a further sign of a drop-off in the housing boom, prices fell from year-ago levels for the first time since 1995. The median price of an existing home sold in August dipped to $225,000 (U.S.) , 1.7 per cent below the price in August 2005.
In a release, the National Association of Realtors said home sales appear to be levelling off to a more sustainable pace. "This is the price correction we've been expecting – with sales stabilizing, we should go back to positive price growth early next year," said David Lereah, NAR's chief economist.
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Stéfane Marion, an economist at National Bank, disagrees with the NAR's statement that the faltering U.S. housing market has hit a trough and prices will start climbing again. "In our opinion, this forecast is way too optimistic."
The inventory of unsold U.S. homes climbed 1.5 per cent in August to its highest level since April, 1993. That surge, Mr. Marion said, has changed the dynamic of the housing market, but houses are still too expensive for many people.
"There is currently more than 3.3 million existing single-family homes and close to 600,000 existing condos available for sale in the U.S.," he said. "Even at the current reduced price of around $225,000, it is important to keep in mind that the median single family home is still selling at 3.7 times median-family income."
That is well above the historical average of 2.8 times family income, he said, meaning that the drop in prices have yet to improve affordability.
"We continue to think that the current supply-demand imbalance in U.S. housing will necessitate further downward price adjustments," Mr. Marion said.
Housing prices south of the border started to rocket higher when the U.S. central bank cut rates in 2001. In addition to record-low interest rates, the housing boom was fuelled by a proliferation of accessible ”buy now, pay later” mortgage products.
However, rising interest rates, higher house prices and surging costs for heating homes have triggered a severe slowdown. In recent weeks, the housing correction has become the dominant topic of conversation, fuelling talk about a possible U.S. recession.
