US property prices are heading for slump

A wave of forced sellers could crash American house prices once social-distancing restrictions are lifted.

“A US housing crisis is coming,” says Danielle DiMartino Booth on Bloomberg. The American mortgage market was at the centre of the 2007 financial crisis, but house prices are now up by 117% from their pre-crisis peak. This time the problem is not “rampant speculation or subprime mortgage fraud”. 

Instead a wave of forced sellers could crash prices once social-distancing restrictions are lifted. Heavy losses in the stockmarket could precipitate a “silver tsunami” as older homeowners are forced to downsize early. Yet surging unemployment means there will be few buyers to meet the supply surge. 

Massive state intervention should provide a backstop to the residential mortgage market, says The Economist. The Federal Reserve will buy unlimited amounts of mortgage-backed securities. Yet the same cannot be said of commercial property, where leveraged real-estate investment trusts (Reits) cannot afford for rent payments to dry up. “Commercial real estate and social distancing don’t mix,” says Stephen Wilmot in The Wall Street Journal. Reits have taken a beating on both sides of the Atlantic, even though their balance sheets are in better shape than in 2008. While retail space is the obvious casualty of social distancing, a deep recession will also be grim for office and warehouse landlords. “For all its reassuring familiarity,” property is “a surprisingly risky business.” 

Recommended

We’re in another house price boom. How long will it last?
House prices

We’re in another house price boom. How long will it last?

UK house prices are in full-on boom mode again. And booms can last a lot longer than you might expect. John Stepek looks at what’s driving the current…
18 May 2021
No let up in house price rises as new records set
House prices

No let up in house price rises as new records set

House prices continued to boom in April, with £20,000 being added to the price of the average home in the last 12 months.
14 May 2021
The best Tudor properties for sale now
Houses for sale

The best Tudor properties for sale now

From a timber-framed hall house dating back to 1542 in Swaffham Bulbeck, Cambridge, to an Elizabethan farmhouse in Norfolk, eight of the best Tudor pr…
14 May 2021
Three commercial property funds that go beyond offices and shops
Property

Three commercial property funds that go beyond offices and shops

When it comes to commercial property, these three real-estate investment trusts in promising niches look most appealing, says David Stevenson.
11 May 2021

Most Popular

How are my cryptocurrency gains taxed in the UK?
Bitcoin & crypto

How are my cryptocurrency gains taxed in the UK?

Many investors in cryptocurrencies have made big gains. But once you take profits – or even buy one cryptocurrency with another – you could be liable…
18 May 2021
US stocks look expensive – here’s what to own instead
Investment strategy

US stocks look expensive – here’s what to own instead

Right now, US stocks are among the most expensive in the world. So if you want a decent return on your investments, you should look into diversifying …
17 May 2021
How will Joe Biden’s capital gains tax rise affect crypto prices?
Bitcoin & crypto

How will Joe Biden’s capital gains tax rise affect crypto prices?

The US president wants to increase capital gains tax – and that’s going to hit a lot of American cryptocurrency speculators. Saloni Sardana looks at h…
14 May 2021