Financial Times Perspective - A nation starts to shiver as the chill sets in
Financial Times Perspective - A nation starts to shiver as the chill sets in
Published: October 24 2006 03:00 | Last updated: October 24 2006 03:00
Copyright The Financial Times Limited 2006
Will, who works in financial services in Boston, rented his home for nearly a decade before taking the plunge into the housing market. Now he fears he may have made a mistake.
"I was conservative with the timing because I wanted to make sure I could afford a 30-year mortgage," he says.
Will, who is in his late 30s and did not want his full name published, paid $485,000 (£259,000, €386,000) for a two-bedroom condominium in Cambridge, Massachusetts, two years ago - since when house prices in the north-east have steadily fallen. In his state, the median selling price for single-family homes dropped 6.1 per cent in August from a year earlier - the largest decline since January 1993, according to the Massachusetts Association of Realtors.
He bitterly regrets not buying 10 years ago. "As it turns out, I timed things horrendously."
But while sub-markets such as Boston hurt, others are still soaring. The US housing market is no more a homogenous entity than that of Europe.
Over in Houston, Texas, Troy and Jill Evans have just bought a five-bedroom, five-bath home in up-and-coming Braes Terrace. "With the market, terrorism and everything else, I don't know if there is a better place to put your money," says Mr Evans, 28, who plays professional football for the Texans. In Houston, he notes, where a lot of houses are still being built, the market seems strong, particularly if you buy in a desirable neighbourhood. "No matter what else happens in Texas or the country, certain places will not take hits," predicts Mr Evans.
In Denver, where the first winter snows have already fallen, something of a chill is enveloping the housing market. At the city's Colorado Convention Center, house prices were high on the agenda for 6,000 property professionals last week at the annual Urban Land Institute gathering. More than 1,000 miles from either the Pacific or the Atlantic, and with a population of just under 1m, Denver is heartland USA.
In property terms, Colorado has an unfortunate claim to fame - for years it has had the highest level of foreclosures in the US. In 1996, just 700 residents of Denver lost their homes because they could not keep up mortgage repayments. This year the figure has passed 4,000.
That baffles commentators, because the local market has not seen the growth of some US cities. House prices inb the city have increased by only 8 per cent in the past three years, compared with 37 per cent for the whole of the US, according to the National Association of Realtors. Instead, the repossessions may reflect economic weakness.
Some new projects, such as the Glass House development at the edge of downtown Denver, have sold out rapidly during the summer. Yet there are concerns about a glut of housing along highways heading out of town. Denver has shown slight price falls for the first time in 16 years and the foreclosures are worrying local leaders.
"Where is this happening? It is primarily occurring in low-income neighbourhoods," says Jacky Morales-Ferrand, director of housing for Denver's Office of Economic Development. "People can go into home ownership without any downpayment, they can get interest-only products: because we [Americans] sell home ownership as a cure for all our problems, this is creating a lot of instability."
Many property experts look back at the past few years as a crazy period for lending. "We have had exotic products that qualify anyone who breathes," says Karl Case, professor of economics at Wellesley College, Massachusetts.
J. Ronald Terwilliger, chairman of Trammell Crow Residential, which has built 200,000 homes in the past 20 years across the US, says too much emphasis has been put on home ownership when renting is much cheaper for many people. "This has been the only time
in my life when you didn't need a downpayment to buy a house, you just needed a job," he says. "It has been pretty irresponsible . . . It was an aberration in our system in the last three or four years that won't, I hope, be repeated."
Rising prices had encouraged people to take on high debt burdens to buy a home - including many who in previous cycles may not have bought. "There have been an awful lot of people who have been brought out of the woodwork by low interest rates," says Gene Myers, owner of New Town Builders in Denver.
In a sign of local concerns, Colorado's attorney general is reportedly to subpoena at least 10 mortgage brokers in an investigation into potentially confusing advertisements.
Jay Haun, a 55-year-old delivery driver in Denver, blames the stress of high mortgage repayments for the loss of his marriage and his home. "I lost the house last year - we seemed to have more debt in the house than its value, we could afford the mortgage but we were so tight we could barely afford to do anything else," he says.
But many in Denver remain phlegmatic about any impending price correction. Terri O'Brien, a 48-year-old accountant, says friends have found it hard to sell their homes. But having bought hers 11 years ago for $106,000 - and watching its value rise to $265,000 - she says she is insulated from any falls: "My only regret is that I didn't buy somewhere bigger before the boom."
US-wide research by James Chung, president of Reach Advisors, a market research firm, shows potential buyers have become more cautious and many now expect price falls. Yet home ownership is still part of the American dream. "Americans are extremely positive about home ownership and most still want to own," he says.
Published: October 24 2006 03:00 | Last updated: October 24 2006 03:00
Copyright The Financial Times Limited 2006
Will, who works in financial services in Boston, rented his home for nearly a decade before taking the plunge into the housing market. Now he fears he may have made a mistake.
"I was conservative with the timing because I wanted to make sure I could afford a 30-year mortgage," he says.
Will, who is in his late 30s and did not want his full name published, paid $485,000 (£259,000, €386,000) for a two-bedroom condominium in Cambridge, Massachusetts, two years ago - since when house prices in the north-east have steadily fallen. In his state, the median selling price for single-family homes dropped 6.1 per cent in August from a year earlier - the largest decline since January 1993, according to the Massachusetts Association of Realtors.
He bitterly regrets not buying 10 years ago. "As it turns out, I timed things horrendously."
But while sub-markets such as Boston hurt, others are still soaring. The US housing market is no more a homogenous entity than that of Europe.
Over in Houston, Texas, Troy and Jill Evans have just bought a five-bedroom, five-bath home in up-and-coming Braes Terrace. "With the market, terrorism and everything else, I don't know if there is a better place to put your money," says Mr Evans, 28, who plays professional football for the Texans. In Houston, he notes, where a lot of houses are still being built, the market seems strong, particularly if you buy in a desirable neighbourhood. "No matter what else happens in Texas or the country, certain places will not take hits," predicts Mr Evans.
In Denver, where the first winter snows have already fallen, something of a chill is enveloping the housing market. At the city's Colorado Convention Center, house prices were high on the agenda for 6,000 property professionals last week at the annual Urban Land Institute gathering. More than 1,000 miles from either the Pacific or the Atlantic, and with a population of just under 1m, Denver is heartland USA.
In property terms, Colorado has an unfortunate claim to fame - for years it has had the highest level of foreclosures in the US. In 1996, just 700 residents of Denver lost their homes because they could not keep up mortgage repayments. This year the figure has passed 4,000.
That baffles commentators, because the local market has not seen the growth of some US cities. House prices inb the city have increased by only 8 per cent in the past three years, compared with 37 per cent for the whole of the US, according to the National Association of Realtors. Instead, the repossessions may reflect economic weakness.
Some new projects, such as the Glass House development at the edge of downtown Denver, have sold out rapidly during the summer. Yet there are concerns about a glut of housing along highways heading out of town. Denver has shown slight price falls for the first time in 16 years and the foreclosures are worrying local leaders.
"Where is this happening? It is primarily occurring in low-income neighbourhoods," says Jacky Morales-Ferrand, director of housing for Denver's Office of Economic Development. "People can go into home ownership without any downpayment, they can get interest-only products: because we [Americans] sell home ownership as a cure for all our problems, this is creating a lot of instability."
Many property experts look back at the past few years as a crazy period for lending. "We have had exotic products that qualify anyone who breathes," says Karl Case, professor of economics at Wellesley College, Massachusetts.
J. Ronald Terwilliger, chairman of Trammell Crow Residential, which has built 200,000 homes in the past 20 years across the US, says too much emphasis has been put on home ownership when renting is much cheaper for many people. "This has been the only time
in my life when you didn't need a downpayment to buy a house, you just needed a job," he says. "It has been pretty irresponsible . . . It was an aberration in our system in the last three or four years that won't, I hope, be repeated."
Rising prices had encouraged people to take on high debt burdens to buy a home - including many who in previous cycles may not have bought. "There have been an awful lot of people who have been brought out of the woodwork by low interest rates," says Gene Myers, owner of New Town Builders in Denver.
In a sign of local concerns, Colorado's attorney general is reportedly to subpoena at least 10 mortgage brokers in an investigation into potentially confusing advertisements.
Jay Haun, a 55-year-old delivery driver in Denver, blames the stress of high mortgage repayments for the loss of his marriage and his home. "I lost the house last year - we seemed to have more debt in the house than its value, we could afford the mortgage but we were so tight we could barely afford to do anything else," he says.
But many in Denver remain phlegmatic about any impending price correction. Terri O'Brien, a 48-year-old accountant, says friends have found it hard to sell their homes. But having bought hers 11 years ago for $106,000 - and watching its value rise to $265,000 - she says she is insulated from any falls: "My only regret is that I didn't buy somewhere bigger before the boom."
US-wide research by James Chung, president of Reach Advisors, a market research firm, shows potential buyers have become more cautious and many now expect price falls. Yet home ownership is still part of the American dream. "Americans are extremely positive about home ownership and most still want to own," he says.
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