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US housing bubble expected to spread

*To me... This looks like the type of article that the mass media conveniently puts in place near or around a top in the market...

US housing bubble expected to spread
By Jim Pickard, Property Correspondent
Published: July 19 2005 16:40 / Last updated: July 19 2005 16:40

The bubble in the US housing market will spread to other states as prices continue to rise, American Express predicted on Tuesday.

US housing bubble expected to spread
By Jim Pickard, Property Correspondent
Published: July 19 2005 16:40 / Last updated: July 19 2005 16:40

GraphicThe bubble in the US housing market will spread to other states as prices continue to rise, American Express predicted on Tuesday.

At present, values are racing away in the northeast, California and Hawaii, which were the major hotspots in the 1980s housing boom. In some parts prices have doubled in the last five years, compared to an average 50 per cent increase for the US as a whole. There have also been strong gains in Nevada, Maryland, Florida and Virginia.

Yet the current bubble, which was already larger than the last one, is likely to grow - and spread even further - said John Calverley, chief economist at American Express, the financial services group.

The boom in US house prices has started later than in other countries such as the UK, Australia, the Netherlands and Spain. However, figures suggest that it is catching up fast. Builders started work on 1.65m new homes in the year to May - the highest number since records began. And about 900,000 condominiums were sold over the past year - almost twice the rate seen in the late 1990s.

Some economists have sought to assuage concerns about prices, saying that they are the natural result of lower interest rates.

But Mr Calverley warned that the boom had definitely become a bubble. The giveaway signs included excitement in the media and new lending policies from banks.

People were borrowing as much as they could because they expected prices would only go up. Meanwhile, new entrepreneurs were springing up offering property advice or “condo flipping”, when flats are bought off-plan and sold as quickly as possible.

A swift end to the phenomenon was unlikely unless interest rates rose significantly. Instead, the US could expect an expansion of the bubble and an even harder landing, predicted Mr Calverley, who last year published a book called “Bubbles and How to Survive Them“.

He forecast that new metropolitan areas would see strong rises as people turned to more affordable houses.

Official figures from The Commerce Department on Tuesday showed that construction of new homes and apartments was level in June.

Builders broke ground on 2m new homes and apartments in June at a seasonally adjusted annual rate, exactly the same pace as in May. This could be a sign of a relative slowdown given that some economists had expected an increase in the figure.


LINK: http://news.ft.com/cms/s/52826a6e-f86a-11d9-8fc8-00000e2511c8.html