One of the great paradoxes in the global market is the price of housing. Overvalued US houses were the source of the financial crisis and crashed afterwards but elsewhere, low rates have led to seemingly endless rise in home prices.
There are signs that US buyers are moving past crisis-era shyness about housing, in part because of low rates and a lack of alternativesThe big surprise on Tuesday was the new home sales report as it jumped to a nine-year high of 654K compared to 580K expected.
According to the FHFA house price index, US home still cost 2.25% less than at the 2007 peak. As that gap closes, there is the risk of the type of acceleration fueled by low rates that exists in many developed countries. In neighbouring Canada, prices have risen 49% since 2007 according to the Teranet home price index. In the UK, prices are up 18%.
Going back to 2000, which should smooth some of the boom-and-bust volatility, Canadian house prices are up 185% compared to the US at 65%.
US buyers were understandably wounded by the housing collapse but there is evidence that those psychological wounds are healing and that could leave considerable upside to the US housing market. An entire generation has sat on the sidelines but that pent-up demand may finally materialize.
What may come next is a jump in housing starts and that type of construction could boost US GDP. Meanwhile, further rises in prices could lead to looser purse strings and the creation of a wealth effect.
Elsewhere in markets Tuesday, oil remains in focus as murmurs of Iran considering joining OPEC curbs were counteracted by talk of Iraq pumping more and, later, a large US inventory build. CAD was taken along for the ride as the volatility continues.
Looking ahead, the Asia-Pacific calendar improves with Australian skilled vacancies due at 0100 GMT and Q2 construction work a half-hour later. On the latter, the consensus is for a 2.0% rise.
|Existing Home Sales|
|5.52M||5.57M||Aug 24 14:00|
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