US Home Woes Continue

By Stewart Douglas

The number of new homes selling in the US has fallen dramatically over the course of August fuelling fears that the problems of the sub-prime crisis have finally spread to the wider economy, according to official figures released today.

The figures had been anticipated to be disappointing, which had seen a sell off on the greenback on world exchanges this morning and an optimistic Dow Jones predicting further interest rate cuts to be right round the corner as the Federal Reserve gear up to make their next rates decision.

The number of new family homes selling nationwide dropped almost 8.5% on the month to hit the lowest rate of home sales in over seven years.  Whilst analysts had previously forecast negative results, the outcome of the figures launched today is far more pessimistic.

On an annual basis, the sale of new homes fell to 795,000, down from 867,000 just one month before, reflecting that the situation in the US housing market is only continuing to get worse.  With the market stagnant for several years now, the news has been taken to suggest that the acute problems in the sub-prime lending sector hand now begun to spread throughout the US economy.

The sub-prime lending sector, responsible for providing high risk to yield ratio mortgages to those with patchy credit histories was exposed to over selling on self certification.  As a result, successive Federal Reserve interest rate rises began to increase the number of foreclosures and mortgage defaults, which began to tie up bank liquidity and prompt a tight credit crunch atmosphere.

Businesses have suffered the effect of a lack of readily available finance, whilst consumer confidence has hit rock bottom.  As a result, many analysts are suggesting that today’s figures indicate the problem could be having a spread effect on the wider US economy.

Meanwhile, the average sale price of news homes fell to its lowest level in over two years, down to $225,700, or £112,000, further highlighting an ongoing lack of demand for homes throughout the US.