Fresh gloom for US housing market

Many analysts think US home prices will fall further in 2008

The number of US home foreclosures, and the rate of homes entering the process, reached record highs in the fourth quarter of 2007, new figures show.

The Mortgage Bankers Association data showed the failing loans rate was led by an increasing number of sub-prime borrowers unable to make payments.

A record 0.83% of loans entered the foreclosure process. The delinquency rate, of missed payments, was 5.82%.

Pending home sales saw no change in January, a small glimmer of stability.

The price decline we have already experienced is helping to restore the housing market towards equilibrium Richard Dekaser, National City Corporation

The index, compiled by the National Association of Realtors, measures deals where a buyer has signed a contract but the sale is yet to be closed.

It is a key measure of future home sales activity, which is why the unchanged figure - coming after a 1.5% fall in the previous month - is being seen a potentially positive sign.

'Downward pressure'

"Given the state of the housing market, it's simply encouraging not to see further deterioration," said Richard Dekaser, chief economist at National City Corporation of Cleveland, Ohio.

"It's pretty consistent with home sales bottoming out, but I don't want to overstate it."

Meanwhile, the rate of failing loans increased across most mortgage types, particularly in the sub-prime borrowers.

"Foreclosures are adding to the supply of unsold homes and that's putting downward pressure on prices," said Mr Dekaser.

"In my view, it portends more price decline in 2008. The price decline we have already experienced is helping to restore the housing market towards equilibrium."

Equity-release

Meanwhile, the Federal Reserve says the percentage of equity Americans have in their homes has fallen below 50% for the first time since 1945.

Homeowners' share of home equity fell to 47.9% in the in the fourth quarter of 2007.

The percentage of debt people still own on their properties now represents more than half its value.

This could be because of people taking out large mortgages on more expensive properties, of because of equity-release loans increasing in recent years.

Recession fear

The weakness in the US housing sector has led some analysts to fear that the economy is heading for a recession.

Many analysts have predicted that prices will continue to fall in 2008 as builders struggle to sell a glut of new properties, many of them coming on to the market as a result of foreclosures.

The worry is that falling home prices and higher mortgage repayment costs will lead to an increase in home repossessions.

This in turn could constrain US consumer spending, which in turn could cause the US economy to contract.