The ailing US housing market passed a grim milestone in the first quarter of this year, posting a further deterioration that means the fall in house prices is now greater than that suffered during the Great Depression.
The brief recovery in prices in 2009, spurred by government aid to first-time buyers, has now been entirely snuffed out, and the average American home now costs 33 per cent less than it did at the peak of the housing bubble in 2007. The peak-to-trough fall in house prices in the 1930s Depression was 31 per cent – and prices took 19 years to recover after that downturn.
Thomas Di Galoma, the managing director of government securities at Oppenheimer & Co, said: "Based on the weakness in housing prices, Chicago PMI and consumer confidence, it appears as though the economy could be headed for a double dip, especially as federal and state spending slows rapidly over the next six months."
Economists warned not to expect any immediate relief to the gloom from the housing market. Banks continue to demand high deposits from potential buyers and are pressing on with foreclosures against those who have fallen behind on mortgages, adding to the glut of unsold homes on the market.
Prices are back to their 2002 levels, according to the Case-Shiller National House Price Index out yesterday. "The national index fell 4.2 per cent over the first quarter alone, and is down 5.1 per cent compared to its year-ago level," David Blitzer, the chairman of the Index Committee at S&P Indices, said. "Home prices continue on their downward spiral with no relief in sight."