Yesterday I ran into an Australian who works for a prosperous American company which is a global household name. He has been transferred to a senior position in that company based in the US. He immediately saw good value in the housing market in the part of the America where he will be based, and he went into a major bank looking to fund the purchase of a house.
The bank wanted at least one third deposit and were very difficult to deal with. All the indications are that my friend's experience is being duplicated around the nation. Rents are high given the value of houses, but my friend fears that given the attitude of the American banks to home lending the market may have further to fall.
Americans are trapped as huge housing losses mount with a significant proportion of the population meeting their mortgage payments despite having negative equity in their homes.
And with a large 'shadow' inventory of unsold properties, there is fear of more price falls and banks are reluctant to lend on houses. It clogs the whole economy and creates a vicious circle.
For the second example from the coalface, anyone interested in stock markets and US housing should read the remarkable email sent to me by another Australian, Simon Cobbin. Cobbin works in Texas on the housing front line – he spends his days trying to arrange deals with troubled household mortgages to avoid foreclosures.
The task is mammoth and he concedes there could be another 10 per cent fall in the US housing market – though he points out that if your house has fallen 40 per cent another 10 per cent does not matter that much.
In the US there are signs of recovery all over the place, but the bond market is telling us that that these signs will not last. The bond traders may be right or wrong, but what is clear is that the over-enthusiastic share analysts in New York who are expecting a sharp recovery in the US are likely to be off the mark – hence the fall on Wall Street this morning.
In Australia the high value of our houses and relatively low unemployment means that we shop in stores with confidence. In vast areas of America they are still shopping, but a large proportion of the people are nervous and are looking for value. It's changing the nature of retailing.
The American banks are sitting on vast piles of money, happy to fund speculators and deals that give the bank executives bonuses, but are not prepared to lend on houses for fear of more losses. At some point the Americans will wake up to the enormous harm American banks are doing to the economy. By making home lending so tough they are creating a vicious circle.
My Australian friend will probably rent a house, but his experience will be lost in the mass of US statistics – except that what is happening to him is being duplicated so many times across America that it is affecting the US economy and global sharemarkets.
This article first appeared on Business Spectator.
Secndly, they need to raise their interest rates to get more people investing, so that they can loan more money.
Thridly, they need to have a system where you can't walk away from your housing loan, like in Australia.
It looks like we have a lot to teach the Yanks about fiscal policy, if only we could also get them to stop exporting not only their junk bonds, but also their junk food.