What if the US housing market slowdown turns into a crash?
American homeowners have been swept along by an unprecedented house price boom over the past few years, helped by super-low interest rates after the dotcom bubble burst. Average prices have more than doubled since 1995. But now, after the Federal Reserve has tightened interest rates 17 times, there is mounting evidence that the boom is turning to bust. ‘For the moment, it’s a soft landing. But the nature of these things is that soft landings very easily become hard landings,’ says Gerard Lyons, chief economist at Standard Chartered. Households have been borrowing heavily against the rising price of their properties to maintain their standard of living in the face of stagnant real incomes and rising energy costs. But if house prices fall – or even simply stop rising – consumers, who have been the drivers of the economy over the past few years, may have to change their ways. ‘A fall in house price inflation will mean that consumers are both less willing and less able to borrow on the bac
