US housing recovery sputters

published 6 June 2014

The American housing market rebound seems to be running out of steam after a hefty two-year bounce. Sales of new single-family houses are down 4.2% year-on-year, while sales of previously owned dwellings are down 7%.

One problem is that a rapid bounce-back in prices has put off potential buyers, while mortgage interest rates have jumped, undermining enthusiasm among consumers already grappling with weak wage growth.Thirty-year mortgage rates are 1% up on last spring.

What's more, credit is still being rationed. Mortgage financing remains "extremely tight", says Ellen Zentner of Morgan Stanley, and builders are also having trouble getting loans.

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Highly indebted young people now often choose to save money by living with their parents, further crimping demand. And investors such as hedge funds, who have helped drive the recovery, have stopped buying-to-let as prices have risen and fewer distressed houses come onto the market.

It's far too early to conclude that the housing recovery is off. But its tentative nature means that housing may not make the contribution to overall growth via construction and making consumers feel wealthier that many had hoped in the next few years. It's just another facet of America's sub-par recovery.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.