Business and finance 15 May 2013 Is the housing crisis over? Well maybe in America. Sign UpGet the New Statesman's Morning Call email. Sign-up 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”. › On child poverty, choosing services over benefits is a progressive dead end Andrew Amoils is a writer for WealthInsight Subscribe For daily analysis & more political coverage from Westminster and beyond subscribe for just £1 per month!