US house pricesMay13.pngIt would be nice to believe that a sustained recovery was now underway in the US housing market. But unfortunately, there is little evidence to confirm the claims now being made. As the chart of prices from the S&P Case-Shiller index shows:

• February prices (red square) remain in the same range seen since the end of 2008
• Certainly they have rebounded since the trough since last year (green line)
• But February’s $159k price is still 30% below peak levels

There are also good reasons to be careful when analysing the data. As a Congressional committee noted last week when reporting on housing finance:

“The displacement of private sector competition is so large that roughly 90 per cent of all residential mortgage originations are securitised into government-backed [bonds].”

As Gillian Tett of the Financial Times added:

“Yes, you read that right: in the supposed land of the free (markets), the state is now guaranteeing almost all new mortgage bonds. Government involvement on this scale has never been seen before in American history; although entities such as Fannie Mae have existed for decades, they used to guarantee between a fifth and a half of the market. Indeed, state support like this is unprecedented anywhere in the western world – even in the parts of Europe that right-wing American senators sometimes like to label as “socialist”.”

Ms Tett is an acknowledged expert in this area, and deservedly won the ‘Journalist of the Year’ award for her 2006-8 work warning of the sub-prime crisis. Equally worrying is the fact that state support on this scale has only managed to stabilise prices.

Thus despite the current hype, a second down-leg for the housing market certainly cannot be ruled out. After all, the blog knows very few Americans who would be happy to describe themselves as ‘socialists’.