Mortgage crisis causes sharpest drop in US house prices for 20 years

28 May 2008 / by Rachael Stiles
House prices in America are falling at their fastest rate for 20 years – five times faster than in 1991 – and are only set to fall further.

In their worst performance since the Standard and Poor's/Case-Shiller US house price Index began 20 years ago, residential properties fell 14.4 per cent in the first quarter of 2008 compared with the same quarter in 2007, and the loss of value of the average US home could double before prices start to recover, experts have said.

Sub prime mortgage customers are finding it impossible to refinance their loans which could be worth as much as 50 per cent more than the value of their home if the current downward trend continues.

The most adversely affected areas are those that have experienced substantial growth over recent years, such as the sun-belt states of California, Florida and Nevada – Las Vegas was the worst hit, with a drop in value of 25.9 per cent – and the rust-belt states of Ohio and Michigan.

"The steep downturn in residential real estate continues," says David Blitzer, chairman of the Index committee at Standard & Poor’s. "There are very few silver linings that one can see in the data. Most of the nation appears to remain on a downward path."

Analysts predict that, with the crash of the sub prime mortgages market and subsequent credit crisis, a recession remains likely, though it could be less severe than previously thought.

Speaking to the Financial Times, former US Federal Reserve chairman Alan Greenspan said he believed that "there is a greater than 50 per cent probability of recession." But he allowed that "that probability has receded a little."

Meanwhile, estate agents brought a glimmer of hope as business was up slightly in April, with sales of new homes rising 3.3 per cent to an annual rate of 526,000, but activity still remained near its lowest for 17 years.

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