Is the end of the spectacular U.S. housing bust in sight?

Whither U.S. housing slump?
Is the end of the long U.S. housing bust finally in sight?

Some analysts suggest the lengthy decline in house prices – it has been five years now – could end this year though they’re not projecting marked increases.

“Tough credit conditions and rising foreclosures will prevent significant and sustained price gains until 2014,” said Paul Dales, senior U.S. economist at Capital Economics in London.

“We now think that prices are close to finding a floor,” he added in a report today. “The key difference between this year and last is that banks are a little bit more willing to lend. For example, towards the end of last year lenders were willing to extend a loan worth 80 per cent of the home purchase price up from nearer 70 per cent in 2010.”

At the current pace of sales, Mr. Dales said, it would take seven months to sell all the unsold stock in the pipeline. And when you exclude the 2010 “distortion” of a temporary tax credit, it’s the first time in five years that that measure of the demand and supply balance is close to its long-term average.

Still, it won’t be a rapid rise, and much still depends on how the euro crisis plays out.

“The loosening of credit criteria has so far been modest,” Mr. Dales wrote. “And by reducing the ability of households to extract a down payment from their home, the previous fall in prices has shut out up to half of all mortgage borrowers from the mortgage market. Moreover, given how many people were burnt during the crash, it will take many years to rekindle America’s love affair with home ownership.”

He also projected a further 3 million foreclosures.

In Canada, the housing market is losing steam, although a U.S.-style bust is not expected. Still, said senior economist Sal Guatieri of BMO Nesbitt Burns, valuations remain a concern.

“If you listen closely you can hear the sound of air seeping out of Canada’s housing balloon,” Mr. Guatieri said in a report. “(unlike a bubble, a balloon can deflate slowly.) Outside of Toronto and Saskatchewan, home sales have moderated since new mortgage rules were introduced in March (for the third time in four years). Markets are balanced in over half the country, but sellers still rule in Toronto, Saskatchewan and Manitoba. Prices have pulled back moderately from spring highs, led by once white-hot Vancouver.

He projected “modest gains” in home sales this year, steady prices, a dip in housing starts and a moderation in mortgage growth from its pace of almost 8 per cent.

Globe and Mail Update Jan 4 2012