It was announced yesterday that US house prices fell by 3.2% in the year to the end of June, according to the S&P/Case-Shiller house price index. As the chart to the left shows (click to enlarge), this is the most severe slide since the index began in 1988. It is worth emphasising that this data does not include the turbulence of the past couple of months – things may have deteriorated much further.
We now have a simultaneous attack on economic growth in the US from both the real economy (ie the stalling consumer) and from the financial sector crisis (ie no more cheap money). It looks like the US housing disaster will probably get worse before it gets better, and a US recession is looking more and more probable (50/50 for 2008?).
I am giving a teleconference on Friday 7 September at 10.00am to talk through what’s going on in bond markets and the global economy at the moment. If you are interested in our views and have any questions about recent events then please click here to register for the teleconference (registration now closed).