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America's recovery

4th November 2008 |

Today is an historic day in the history of the United States, when it will either elect its oldest president or its first black president. Following the last minute clarion calls, the exit polls, the announcement of results, the concession and victory speeches, one of the two men seeking the most powerful office on Earth will inherit a series of difficult challenges.

Right in the heart of the economic problems faced by the US is its housing crisis, from which the subprime consequences have spiralled out in a whirlwind that has all but blown the roof off the world's financial system and brought Lehman Brothers crashing down like a tall tree.

If the credit crisis has been a perfect storm, or something approaching it, some may argue that the most important action has been taken by the outgoing administration, with the $700 billion (£435 billion) banking rescue. The task facing the new president will be to deal with the long clean-up operation.

In the middle of this, those thinking of investing in American property will be asking when the market will start to recover. Some will look for signs of improvement before taking the plunge, while others may take more of a punt on being able to guess when the market is at the bottom.

One piece of encouraging news may come from economist Henry Spelter, who works for the US Forest Service's Forest Products Laboratory (wood, of course, being a more prominent building material in the US than in Britain). In a research note quoted by the Vancouver Sun today, he said: "Restoring the normal relationship of price to income is necessary but not sufficient to revive real estate. Credit still needs to flow freely again, incomes need to keep pace and general economic conditions need to stabilise but ... we appear to be much closer to the end than the beginning."

Of course, being closer to the end of the crisis than its start does not mean that imminent boom is around the corner. The procession of the credit crunch has been a lengthy one. But it does at least suggest that the time may be nearing when the market will reach the bottom, even if upward progress after that could be slow at first.

Some may counter that predictions, rather like political speeches, are all well and good, but what is needed is real evidence of change for the better. One positive sign of late was the recent news from the US commerce department that new home sales rose 2.7 per cent between August and September. Others may note that there are still signs of decline in some places, but less of it than before.

One example of the latter was provided by housing researcher Ryan Jones of demographic research firm Metrostudy. He noted that the number of sales of new homes in the Minnesota twin cities of Minneapolis and St Paul in the year to September 2008 was 23 per cent down on the previous 12 months. But, he noted: "It is one of the mildest year-over-year declines recorded since 2005." So by his estimation there was some good news even in this finding.

It may be that the early signs of recovery involve a mixture of smaller declines than before and occasional improvements, before all the indicators start to move positively in one direction. Investors in America may need to watch closely for these emerging, for they may come sooner than some think.