Is the housing crisis over?

Well maybe in America.

The infamous US housing crisis which spilled over into worldwide markets and was a major cause of the 2008 global financial crisis seems to finally be over. In the US at least.

Residential real estate prices released by S&P/Case Shiller this past week show that the US residential market has begun to recover after 5 years of negative growth.

The results show that in the 12 months to February 2013, US house prices rose by 9.3 per cent.

This index is based off the property values in 20 major cities. The largest gainers were Phoenix with 23 per cent growth, followed by San Francisco (19 per cent growth) and Las Vegas (18 per cent growth).

The two largest US cities, Los Angeles and New York, also both recorded price growth over the 12 month period. Los Angeles registered strong growth of 14 per cent, while New York recorded more moderate growth of 1.9 per cent.

Compared to peak levels

Despite this recent growth, home prices nationwide are still 29 per cent below their peak reached at the height of the housing bubble in July 2006. They are only back to where they were in the fall of 2003.

Some cities such as Dallas and Denver are almost back to where they were in July 2006. They are both within 5 per cent of peak levels. However, the likes of Los Angeles and New York are both over 25 per cent below peak levels.

Background to US housing crisis

Timeline

  • Prior to 1996 only wealthier people were able to get sub-prime mortgages. All this changed in 1996, when the US housing department set a goal for Fannie Mae and Freddie Mac that at least 42 per cent of the mortgages they purchase be issued to borrowers whose household income was below the median in their area.
  • This target was then increased to 50 per cent in 2000 and 52 per cent in 2005. This led to increased sub-prime lending, particularly to lower income groups.
  • During 2001, US interest rates were decreased from 6.0 per cent to less than 2.0 per cent in order to fuel consumer spending. Rates were then kept at this low level until 2005.

The points above fuelled increased mortgage lending and speculation which caused US house prices to increase by 57 per cent over the period between 2000 and 2006. Rates were then put up to just over 5.0 per cent in 2006 as the Fed suspected a property bubble was developing.

The US property market then began to contract in 2007, with house prices falling by 9.0 per cent during the year. A larger decline occurred a year later, in 2008, when US house prices fell by 18.6 per cent. This led to widespread panic in the market and a large number of home owners defaulted, resulting in a run on a number of investment banks that had bought and sold large volumes of ‘toxic debt’ instruments related to mortgages including credit default swaps.

The five largest US investment banks (with combined debts of US$4 trn) either went bankrupt (Lehman Brothers), were taken over by other companies (Bear Stearns and Merrill Lynch) or were bailed out by the US government (Goldman Sachs and Morgan Stanley) during 2008.

The US property market continued to decline in 2009 but by a more moderate 3.1 per cent. This was followed by a decline of 2.4 per cent in 2010 and a 4.1 per cent decline in 2011.

Recovery Begins

In 2012, US housing prices recovered by 6.9 per cent and by 9.0 per cent  in the 12 months to February 2013.

According to London based wealth consultancy, WealthInsight: “this increase bodes well for the future. However, confidence in the asset class has been heavily eroded and it will take more time to restore investor confidence”.

Andrew Amoils is a writer for WealthInsight

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Five things Hillary Clinton’s released emails reveal about UK politics

The latest batch of the presidential hopeful’s emails provide insight into the 2010 Labour leadership contest, and the dying days of the Labour government.

The US State Department has released thousands of Hillary Clinton’s emails. This is part of an ongoing controversy regarding the presidential hopeful’s use of a private, non-governmental server and personal email account when conducting official business as Secretary of State.

More than a quarter of Clinton’s work emails have now been released, in monthly instalments under a Freedom of Information ruling, after she handed over 30,000 pages of documents last year. So what does this most recent batch – which consists of 4,368 emails (totalling 7,121 pages) – reveal?
 

David Miliband’s pain

There’s a lot of insight into the last Labour leadership election in Clinton’s correspondence. One email from September 2010 reveals David Miliband’s pain at being defeated by his brother. He writes: “Losing is tough. When you win the party members and MPs doubly so. (When it's your brother...).”


Reaction to Ed Miliband becoming Labour leader

Clinton’s reply to the above email isn’t available in the cache, but a message from an aide about Ed Miliband’s victory in the leadership election suggests they were taken aback – or at least intrigued – by the result. Forwarding the news of Ed’s win to Clinton, it simply reads: “Wow”.


Clinton’s take on it, written in an email to her long-time adviser, Sidney Blumenthal, is: “Clearly more about Tony that [sic] David or Ed”.

Blumenthal expresses regret about the “regression” Ed’s win suggests about the Labour party. He writes to Clinton: “David Miliband lost by less than 2 percent to his brother Ed. Ed is the new leader. David was marginally hurt by Tony's book but more by Mandelson's endorsement coupled with his harsh statements about the left. This is something of a regression.”
 

Peter Mandelson is “mad”

In fact, team Clinton is less than enthusiastic about the influence Mandelson has over British politics. One item in a long email from Blumenthal to Clinton, labelled “Mandelson Watch”, gives her the low-down on the former Business Secretary’s machinations, in scathing language. It refers to him as being “in a snit” for missing out on the EU Commissioner position, and claims those in Europe think of him as “mad”. In another email from Blumenthal – about Labour’s “halted” coup against Gordon Brown – he says of Mandelson: “No one trusts him, yet he's indispensable.”

That whole passage about the coup is worth reading – for the clear disappointment in David Miliband, and description of his brother as a “sterling fellow”:


Obsession with “Tudor” Labour plotting

Clinton appears to have been kept in the loop on every detail of Labour party infighting. While Mandelson is a constant source of suspicion among her aides, Clinton herself clearly has a lot of time for David Miliband, replying “very sorry to read this confirmation” to an email about his rumoured demotion.

A May 2009 email from Blumenthal to Clinton, which describes Labour politicians’ plots as “like the Tudors”, details Ed Balls’ role in continuing Tony Blair and Gordon Brown’s “bitter rivalry”:


“Disingenuous” Tories “offending” Europe

The Tories don’t get off lightly either. There is intense suspicion of David Cameron’s activities in Europe, even before he is Prime Minister. Blumenthal – whose email about a prospective Cameron government being “aristocratic” and “narrowly Etonian” was released in a previous batch of Clinton’s correspondence – writes:

Without passing "Go," David Cameron has seriously damaged his relations. with the European leaders. Sending a letter to Czech leader Vaclay Klaus encouraging him not to sign the Lisbon Treaty, as though Cameron were already Prime Minister, he has offended Sarkozy., Merkel and Zapatero.

He also accuses him of a “tilt to the Tory right on Europe”.

In the same email, Blumenthal tells Clinton that William Hague (then shadow foreign secretary), “has arduously pressured for an anti-EU stance, despite his assurances to you that Tory policy toward Europe would be marked by continuity”.

In the aftermath of the 2010 UK election, Blumenthal is apprehensive about Hague’s future as Foreign Secretary, emailing Clinton: “I would doubt you’ll see David again as foreign secretary. Prepare for hauge [sic, William Hague], who is deeply anti-European and will be disingenuous with you.”

Anoosh Chakelian is deputy web editor at the New Statesman.