Testing times for homeowners

RIVERSIDE, California: On the surface, a glimmer of confidence is returning to the battered US housing market, after more than three years of gut-wrenching defaults, price slumps and foreclosures.

But investors and homeowners in California, the most populous US state and a benchmark for housing across the country, are bracing for another fall as emergency government support measures fall short or expire.

"All that has been achieved is to put off the real pain until later on," said Mark Jacques, a mortgage broker in Corona Del Mar, California. "I'm hunkering down for the storm."

California led the United States when housing prices soared early this decade, spurred by an array of public policy incentives to encourage home ownership. The boom fueled a frenzy of lending and spending that drove the US economy.

But California proved to be the epicenter of reckless lending that pushed housing throughout most of the United States over a cliff in 2007, triggering a credit crisis that plunged the world economy into recession.

The sobering view now from ground zero of the US property market underscores the problems faced by President Barack Obama as he tries to fix the US economy.

Washington is trying to stem rising numbers of homeowners who cannot afford their mortgages as job losses mount.

Housing prices have fallen to levels not seen since 2003. But even investors pouring millions of dollars back into real estate say it may take up to four more years for California's housing market to settle.

The reasons why - rising foreclosures, joblessness and tight credit - are not unique to the state and may have already slowed a recent recovery in places like Florida.

A first test of the US housing rebound could come with the scheduled Nov 30 expiry of an $8,000 tax credit for first-time buyers.

The plan has resulted in 357,000 home sales so far in 2009, out of a total 3.88 million, according to a survey of realtors by research firm Campbell Communications Inc.

Ending the credit will likely cause a drop-off in buyers, or a "false peak" of the budding housing recovery, according to John Burns Real Estate Consulting in Irvine, California.

In a sign of concern in Washington that the housing market cannot yet stand on its own feet, administration officials say they are considering an extension of the credit.

Helped by government measures and a sense that the worst of the price slump is over, US home prices have risen nearly 4 percent from their low point in April. But the bounce was preceded by a 33 percent slide since the peak in July 2006.

The nascent housing recovery has combined with stronger data in other sectors to suggest the US recession is over. This has helped thaw credit markets that are the lifeblood of the economy.

Bidding wars are breaking out in some areas. Sales are now routinely above asking prices in California, from wealthy Orange County towns like Irvine to harder-hit San Bernardino County in the high desert east of Los Angeles.

Reuters

(China Daily 10/19/2009 page11)