Against the backdrop of historically low interest rates and government stimulation, participants in property markets in both the United States and the United Kingdom responded with nothing short of jubilance.
Whereas pessimism was the leading dynamic for the majority of 2008, it seems that the Spring of 2009 brought a renewal of housing euphoria, though in a more limited and fragile sense.
In the U.S., the first time “homebuyer” tax credit, the “cash for clunkers” of housing, provided significant stimulation on the lower end, driving sales and a noteworthy bounce in prices.
In the U.K., the lowest interest rates in most peoples' lifetimes taken together with significantly corrected prices provided the impetus for a notable price bounce as well.
But how long can this stimulation last and what will happen if it doesn’t?
Now is where the rubber meets the road.
The most recent data is showing signs that the euphoric bounce is drawing to a close.
The Radar Logic home price indices clearly show that the U.S. home price bounce has topped out and is now fully in decline even in some of the worst hit markets where prices have already dropped back to levels not seen in at least a decade.
While the “Nationwide” series, one of the leading U.K. housing market indices, showed the first year-over-year increase in 18 months, on a month-to-month basis prices hardly moved from September while the “Halifax” series followed suit.
The S&P/Case-Shiller Composite 10 series, a comparable series to both of the U.K. series, is also showing that the rate of house price inflation is slowing on a month-to-month basis while remaining strongly negative on a year-over-year basis.
What does it mean for all of these series to be moving together and leaning toward a posture of deflation?
It means the bounce is likely drawing to a close leaving intervening governments with a serious dilemma.