US home prices up as deficit soars

Housing and consumer data raise recovery hopes but $9 trillion deficit expected by 2019.

US housing prices rose for the second month in a row in June [EPA]
US housing prices rose for the second month in a row in June [EPA]

Housing recovery

“The recession appears to be over, with consumer attitudes lagging behind broad economic developments,” said Steven Wood, chief economist at Insight Economics in California.

The Standard & Poor’s/Case-Shiller, a closely watched housing price index, showed prices of US single family homes rose by 1.4 per cent in June from May, after creeping up by 0.5 per cent in April, suggesting the crippling housing slump was easing.

While the Case-Shiller 10- and 20-city indexes have plunged by 54.3 per cent and 45.3 per cent, respectively, from their 2006 peaks, June’s improvement was broad based, with 18 of 20 metropolitan areas logging gains for the month.

“The most important take-away is the breadth of the rise,” said Adam York, an economist at Wells Fargo Securities in Charlotte, North Carolina. “The absolute worst is behind us.”

Separately, the Federal Housing Finance Authority said US home prices rose by 0.5 per cent in June, according to its seasonally-adjusted monthly index, while prices fell by 0.7 per cent in the second quarter.

Anna Piretti, an economist at BNP Paribas in New York, said the data suggested “house price deflation has bottomed”.

The housing market, which collapsed under the weight of the sub-prime mortgage crisis that triggered the financial meltdown, is seen as a critical component to an economic recovery.

Consumer confidence

The housing figures raised hopes the US economy may be recovering [EPA]

Adding to the good news, the New York-based Conference Board, an industry group, said consumer confidence climbed to a reading of 54.1 in August from 47.4 in July, reversing two months of decline and easily beating forecasts on an improved outlook for the job market and the overall economy.

Economists closely monitor confidence because consumer spending accounts for about 70 per cent of US economic activity.

Consumer sentiment has recovered somewhat since hitting a record-low of 25.3 in February.

And Americans’ pessimism about the economy appears to be lifting, with consumers’ expectations for the economy over the next six months rising to 73.5 from 63.4 in July, the highest level since December 2007, when the recession began.

More consumers said they were likely to buy a home or a car within the next six months than said so in July’s survey.

But economists warned that consumer confidence remains far below levels associated with a healthy economy and might not lead to the increased spending critical for a broad recovery.

“Confidence remains well below its historical average of 95 and it has not even regained the level of 61 seen before the collapse of Lehman almost a year ago,” said Paul Dales, a US economist at Capital Economics in Toronto.

A reading of 90 indicates the economy is on solid footing; anything above 100 signals strong growth.

The weak jobs market remains a sticking point to recovery and even the Fed has conceded the likelihood of a “jobless recovery,” with the unemployment rate staying high long after growth resumes.

That, and the ballooning deficit projections diluted the positive news on Tuesday.

Soaring deficit

The administration of Barack Obama, the US president, on Tuesday raised its estimate of the country’s budget deficit between 2010 and 2019 to over $9 trillion, an increase of $2 trillion over its previous forecast.

The estimate is markedly higher than that posted on the same day by the non-partisan Congressional Budget Office (CBO), which lowered its decade forecast to $7.14 trillion.

“Overall, it underscores the dire fiscal situation that we inherited and the need for serious steps to put our nation back on a sustainable fiscal path,” Peter Orszag, the White House’s Office of Management and Budget director, said of the administration’s figures.

While the White House raised its projection for 2010-2019, it reduced its 2009 fiscal budget deficit forecast to $1.58 trillion, from its previous estimate of $1.84 trillion.

Obama administration officials said that the size of the 10-year deficit was due in part to reckless spending by the administration of his predecessor George Bush.

Spending questioned

The figures come amid criticism from republicans of Obama’s health reform plans

The latest figures come as republicans continue to criticise Obama for his healthcare reform plan and measures to tackle climate change.

Opponents say the programmes, which are likely to cost several trillion dollars if implemented, will plunge the country further into debt.

“It’s time for the administration and congressional democrats to face the consequences of this dangerous fiscal agenda and change course,” John Boehner, the republican minority leader of the House of Representatives, said.

But Orszag said the estimated deficit for the 2009 fiscal year, which ends September 30, has actually been cut under Obama’s leadership.

“We now expect that the policies put in place to repair the financial system are likely to cost taxpayers less than previously anticipated,” Orszag said, referring to a $787bn economic stimulus package aimed at steering the country out of recession.

Source : News Agencies


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