One more on housing crisis in US

The genesis of sub prime-crisis is the riskier credit policies provided for the housing sector in US. Considering the existing situation, I wanted to know what is the situation prevailing in US regarding the housing scenarios

As can be seen from the above image, the housing prices in US have been steadily increasing until 2005. It took almost 3 decades for the prices to reach the 1975 level. But since 2005 the decline has been so steep that in less than 3 years the prices have reached levels below the 1970 prices. In the fiscal year 2007-08 alone the prices have declined by more than 15%.


With this steep decline, the amount of investment that goes into the housing sector has obviously reduced a lot. This is reflected in the graph below:


As can be seen above the decline in the investment in the housing sector has decreased by around 25% and that the contribution of the housing sector to the GDP has also declined drastically.

This in turn means that the employment in that sector has decreased sharply which adds to the woes of the economy.

The decrease in prices has been so drastic that the affordability of the houses has actually increased.


But this certainly hasn’t increased the sales because the income levels have also declined a lot.


In fact the inventory levels of the housing i.e. the number of unsold houses has increased tremendously because of decrease in the sale of those new homes.


The above indicators are certainly a proof that US is no longer distant from a recession rather as some economists believe is already in recession.
(Source, IMF report 9th April 2008)

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