aul Diggle, Property Economist shares his views on the US housing sector with CNBC-TV18.
Below is the edited transcript of Paul Diggle, Property Economist’s, interview with CNBC-TV18 .
Q: Do think the housing market in the US has finally turned a corner and more importantly is this growth sustainable?
A: In a word yes. Some of the pick up in the US housing market this year has been seasonal but the improvement has been stronger than we normally expect during the buying season. So we think in short that this is sustainable recovery. Now the reason it is sustainable is that it has been driven by extremely low level of house prices in the US and housing is now extremely affordable and looks well-valued relative to incomes.
That's the foundation of much the recoveries being built. It has been helped by a gradually improving wider US economy. But the real increase we have seen in sales to investors have been very important as well and investors are taking advantage of the opportunity to built portfolios of homes in the US and rent them out to households who can't buy.
Q: Analysts say prices could decelerate as the traditional summer time season passes. After netting out seasonal factors, home prices have been changed little in the past few years. What is your view on the same?
A: There is a possibility of house price gain slowdown somewhat in the second half. It would be normal and it will be rated to usual seasonal changes. The issue will be whether they slowdown more than the seasonal variation. We think they actually won't, they want just to have seasonal effects. House prices will continue on a modest upward trend for the rest of the year.
Q: How important a role does housing play in trying to assess broader economic growth in the US in the next quarter at least?
A: Unfortunately it will play a small role in the recovery than it has in the past. Housing is a much larger sector in the overall economy. It made a much great contribution to GDP growth. It can now, not simply reflect the size of the contraction we have seen in the housing sector in the last five years.
So the bottom line is while the US housing sector is going to make a positive contribution to overall GDP growth, it’s not a big enough sector to drive the economic recovery into higher gear.
Q: We are not very far away from elections. What does your housing market assessment then mean for the election campaigns of candidates, President Obama and his challenger Mitt Romney?
A: So far I do not think we have seen a huge amount of difference in the policies that the candidates are proposing and the institutions they are proposing for housing sector. Under a second Obama administration we would see continued efforts to encourage refinancing and to get people benefiting from the extremely low interest rates in the environment.
Under Romney administration, we could see some efforts to increase lending to mortgage borrowers. But so far the policies that they propose in the housing sector have been somewhat big and there haven’t been huge differences in the solution they are offering. I do not think that the outcome of the election at the end of the day is going to make an enormous difference to how the housing recovery plays out.
Q: Do you think the hurdles facing the housing market can be overcome by easing regulations or lending norms? Do you think the improvement hereon in the housing market will only be incremental?
A: Yes, I think you are exactly right. Time is probably going to be the best healer of the US housing market. The recovery that has taken place over the last year or so has been somewhat of an organic recovery. It has reflected how far the market fell during the crash. The investment opportunities, the housing now offers extremely low levels of valuations and it is those factors rather than direct policy interventions that I think will continue to drive a housing recovery.
Q: So will we see some deterioration in the housing market over the course of the next few months? Do you believe the recovery is sustainable?
A: The recovery is here to stay. It looks sustainable. It has built an extremely low favourable valuation, the low level of house prices, fair mortgage affordability and extremely low interest rates. There will be some seasonal downturn in the second half of the year, but that should not fool us into thinking that the housing recovery is entering a second downward leg.