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Many Americans owe more than their home is worth

Economists and analysts are predicting the weakened U.S. economy will depress housing prices for years, restraining consumer spending, pushing more homeowners into foreclosure and clouding prospects for a sustained recovery in the US property market.

Prices have already fallen 31.6% from their 2005 peak, as measured by the Standard & Poor’s Case-Shiller 20-city index. And home prices are expected to drop 2.5% this year and rise just 1.1% annually through 2015, according to a recent survey of more than 100 economists to be released Wednesday.

I know there are still some property spruikers recommending buying in the US – but steer clear. There is more pain to, come.

I’ve written about why I beleive you should avoid investing in the US in previous blogs herehere and here.

Cheap doesn’t mean good value.
Sure properties in some parts of the US are very cheap, but that doesn’t make them a good investment…at any price.

Currently one in five Americans with a mortgage owes more than their home is worth, and $7 trillion of homeowners’ equity has been lost in the bust. Homeowners’ equity as a share of home values has fallen to 38.6% from 59.7% in 2005.

The housing bust has chilled consumer spending—the largest single driver of the U.S. economy—with eroding home equity contributing to the so-called reverse wealth effect that prompts people to spend cautiously because they feel poorer.

With all of the economic turmoil, both in the US and internationally, there’s not much that points to an improving US property market in the near future.

While home prices aren’t falling at anywhere near the pace of 2008 att eh height of the GFC, even modest declines become self-reinforcing, pushing more homeowners underwater and exacerbating the downdraft caused by more foreclosures.

There are better property investments locally.



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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