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The worse may not yet be over for the already battered US housing market

The worse may not yet be over for the already battered US housing market, where the seeds of the current financial crisis were sown. While house prices since then have crashed, the question that is now on everyone’s mind is - whether they have fallen enough? And the answer may well be ‘no’. The logical conclusion being the bigger the bubble, the bigger will have to be the crash. Not only that, while prices have melted, they are not cheap as comparable to wages and even more so in a scenario where job uncertainty looms large. Furthermore, as reported in the Wall Street Journal, the prices currently are at a level last seen in 2003 when they were perceived to be inflated even then. Therefore, to find pre-bubble prices one would have to go back to about 2000 when values overall were about a third lower than they are today.
Interestingly, the paper has compared the current bubble with the 1989 property bubble and has observed that the home prices currently are more expensive in relation to average earnings, than at the peak of the 1989 bubble. What’s more, when that bubble burst, it took around 8 years before any signs of revival began to manifest. By that comparison alone, the housing market will probably take a longer time to recover, even when the current market is being labeled as a buyer’s one.

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