With whispers of a US economic recovery being carried on the global economic winds, the one sector that is still holding this world superpower back is its real estate market.
In stark contrast to Australia, American housing is being cited as the main reason for the US taking so long to get back on its feet and end its economic woes.
Dubbed “the fault-line of the American economy”, 1.25 million mortgages across the country are currently under water, with a further 10 million at risk of default.
And try as he might, President Obama can’t seem to right the wrongs when it comes to the property market in his own backyard.
Nothing seems to be working
A number of political moves, including incentives for the banks to write down principal on loans that have already gone under and allowing struggling owners to refinance at lower rates with federal agencies have done little to make a dent in the problem.
For Australians, it’s difficult to imagine being in a situation where we would feel so hopeless about our growing home ownership debt that walking away and cutting your losses would be a better option than taking up such incentives.
But that’s exactly what’s happening in the US.
With their homes worth less than what they owe, many Americans have given up on their properties, deciding it’s all too hard to deal with and leaving hundreds of banks holding the titles to houses that are virtually impossible to sell.
Have they hit rock bottom?
However some commentators are suggesting that 2012 will mark the true bottoming of the property sector in the US, as unemployment continues to decline rapidly, building approvals – one of the globally recognised indicators as to the health of housing markets – slowly pick up and mortgage delinquencies rebound from 2010’s record highs.
That’s not to suggest that things will turn around anytime soon for the beleaguered US housing market though, with most who work in the industry pinning their hopes on stabilization during 2013.
One thing is certain, any type of recovery for US housing is unlikely to occur as a result of measures taken by the Obama administration in an attempt to halt the ever rising number of mortgage delinquencies across the country.
In fact many believe it’s a matter of waiting it out until natural forces determine where the bottom of the housing market actually is, and many commentators say the government programs intended to prevent further foreclosures are really just a band aid measure for what is a gaping wound in the very foundation of the US property sector.
Some critics suggest all of these preventative tactics will only prolong the downturn and delay the inevitable, with 44 per cent of homeowners who are rescued from foreclosure by government intervention eventually defaulting again, according to the Office of the Comptroller of Currency.
Tighter Lending policies
Adding to the US housing market’s issues is the government’s push to tighten the very lax credit policies of lenders that was arguably the catalyst for the market’s catastrophic crash in the first place.
Managing director with Amherst Securities, Laurie Goodman says, “Almost every single proposed governmental action has been aimed at further tightening credit availability.”
She claims that almost one in five borrowers at the peak of the housing boom wouldn’t even qualify for a mortgage now, given the more stringent regulations.
So is it time to invest in the USA?
Regardless of the rights and wrongs perpetuated on the US housing market by the government and whether or not it has hit rock bottom, the take home message for Australian investors looking to make a quick buck off the back of America’s bad luck remains the same for me.
Quite simply – don’t do it!
Yes there are some incredible “bargains” going, with some states such as Nevada seeing more than half of all mortgages go under, but that in itself should ring the alarm bells. Millions of foreclosed properties are sitting vacant today because no one wants them and that is not the basis of a good long-term investment.
And if you still need convincing, you only have to think about the latest miracle cure the government is considering that entails more incentives for investors to buy foreclosed homes to rent out.
From where I sit, the US housing sector has a long way to go before the silver lining starts to shine and as far as investment goes, well, Australia isn’t called “The Lucky Country” for nothing.
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