The plunge in US house prices shows no sign of easing, pointing to further problems in the coming months for the Fed, US homeowners, banks, retailers and other companies battling the economic slump and dependant on the cash poor (and increasingly jobless) US consumer.
The S&P Case-Shiller Home Price Index, which measures house prices in the 20 major metro areas across the US, fell a record 18.2% in the 12 months to November.
It was the second major house price measure in the US to show a record fall in latter months of 2008 after a real estate group said the median price of sales of existing houses in America fell more than 15% in the 12 months to December.
The fall in the Case-Schiller Index has effectively returned the index to levels last seen in February 2004. From its peak in the middle of 2006, the index has plunged a whopping 25.1% in around 30 months.
The continual fall in house prices, plus rising unemployment continues to batter US consumers and a survey out overnight showed that US consumer confidence fell to a new low in January of 37.7 from 38.6 in December.
The US Conference Board’s confidence index revealed that consumers felt worse about current conditions in January, defying predictions of a rebound. Of the 5,000 US households queried, 47.9% said that current conditions had worsened, up from 45.8% in December. A rare bright point was slightly improved feelings about the labour market. In spite of widespread cuts, fewer consumers said they felt jobs were hard to find. However less consumers are expecting their incomes rise.
That’s contrary to the way consumer confidence in Australia has improved as interest rates have fallen and the with the Government’s $10.4 billion December stimulus package.
The two reports would have made uncomfortable reading as the US federal Reserve’s Open Markets Committee started a two day meeting to discuss the economic situation. The Fed won’t change rates from the range of 0% to 0.25% that was set in December, but it will look at ways of boosting the home, car and credit card/student loan sectors by stimulating activity via purchases of securities.
It has to do something to stop the way negative news in one area feeds confidence and activity in other parts of the economy, as we are seeing with the primary drivers, the plunge in house prices and rise in jobless numbers.
A surge in job losses is helping drive down US consumer confidence and the wealth destroying slide in house prices which shows no sign of ending. The Case Schiller index showed overnight that 11 of the 20 cities saw record price declines in the year to November, and the 12-month price drop for 14 of the cities was a double-digit percentage.
“The freefall in residential real estate continued through November 2008,” according to David Blitzer, chairman of the Index Committee at Standard & Poor’s. In a statement he said the 20-city index has fallen for every month since August 2006, a total of 28 consecutive months.
Monthly declines in home prices abated somewhat last summer, but the pace quickened last autumn. According to economists at High Frequency Economics, housing wealth is falling $US380 billion each month in the US, or $US370 per adult a week.
The decline was very broad, with prices down at least 1% in every region of the nation during the October-November period. Eight regions recorded record monthly declines.
Cities in the Southwest were the hardest hit, with Las Vegas prices dropping 3.9%, the nation’s worst decline. Phoenix, at 3.4% was second. The Arizona metropolis recorded the worst 12-month decline, at 32.9%, followed by Las Vegas, at 31.6%. No wonder the Las Vegas gambling business is rotten.
New York and Cleveland prices fell by only 1% for the month, the smallest November drops. The best 12-month performer was Dallas, where prices slipped by 3.3%. Other 12-month, single-digit percentage drops were recorded by Denver, at 4.3%, Cleveland, at 5.2%, and Charlotte N.C., at 5.3%.
Other housing reports this week have shown prices falling as foreclosures climb. The National Association of Realtors (real estate agents) said the median sales of existing homes fell 15.3% in December from a year earlier, compared with a 13.6% fall in November.
There was an easing in the pace of job losses announced: around 10,000 or so after the 72,000 revealed in the US on Monday.
According to US media estimates, this month has seen 210,000 jobs shed at big and medium-sized companies. Tens of thousands of other jobs have gone from smaller businesses.
High-tech glass and ceramics maker Corning Inc chopped 3500 overnight in the biggest cut. That’s a large 13% of its employees. Oil field services company Baker Hughes cut 1,500 employees world wide. That’s about 4% of its workforce. Its bigger rival Schlumberger chopped 5,000 last Friday.
Navistar International, the big truck maker, is laying off 700 people after revealing plans to close two factories in Indianapolis at the end of July. Specialty chemicals and office products company Avery Dennison revealed plans to remove 3.600 people from its payrolls over the next two years, Volvo trucks cut 650 jobs in the US, 220 jobs will go after forest product company Weyerhaeuser closed two mills in Washington and in what could be a major announcement in retailing, Target Corp, America’s second biggest discounter confirmed it was looking at staff cuts, but there were no details available, yet.
US chemical giant DuPont Co posted a fourth-quarter loss on Tuesday on a slump in demand, coupled with severance and restructuring-related charges. DuPont also cut its full-year 2009 earnings outlook, blaming lower demand for non-agriculture products and the negative impact from the higher US dollar.
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