US has not felt this bad since Watergate

US has not felt this bad since Watergate

Collapsing house prices across the United States have made Americans more pessimistic about the year to come than at any time since the height of the Watergate scandal and the first postwar oil price shock in the early 1970s, it was revealed yesterday.

Adding to fears that the world's biggest economy is falling deeper into recession, two reports showed an acceleration in the decline in house prices and an unexpectedly sharp fall in consumer confidence.

The Case-Shiller index of house prices in 20 US metropolitan areas found that the bursting of the real estate bubble had led to the biggest decline in the index's 20-year history. Las Vegas and Miami were the worst hit cities, reporting 19.3% drops, significantly more than the 10.7% average decrease felt across the country. Fourteen other cities, including Phoenix, San Diego and Detroit, also suffered record lows.

The report said that sellers were cutting the prices they were asking for their homes, while the record number of foreclosures resulting from the sub-prime mortgage crisis was also taking its toll.

A separate report from the Conference Board said that consumer confidence dropped to 64.5 in March from a revised 76.4 in February. The reading was far below the 73.0 expected by analysts.

Bernard Baumohl, executive director of the Economic Outlook Group in New Jersey, said consumers' pessimism "reflects the great anxiety that households have because there are just so many uncertainties.....continued below

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that everyone faces".

The Conference Board said Americans were downbeat about their current situation, but were even gloomier about the future. While the present situation index, which looks at current conditions, fell to 89.2 in March from 104.0 in February, the expectations index, which looks ahead, dropped to a 35-year low of 47.9 in March from 58.0 the previous month. The last time the reading was so depressed was in December 1973, when it registered 45.2 amid the Arab oil embargo that brought an end to the long postwar boom.

Lynn Franco, director of the Conference Board's research centre, said: "Consumers' outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon."

An alternative measure of house prices published by the Office of Federal Housing Enterprise Oversight showed prices down by 3.0% over the same 12-month period, a smaller fall than that registered by Case-Shiller.

A spokesman from Capital Economics said: "Both indices are equally valid as far as sample coverage and methodology goes, so we suspect that the truth lies somewhere between the two. Nevertheless, the bottom line is that regardless of the measure used, house prices are now falling and the rate of decline is accelerating."

James Knightley, economist with ING, said the decrease in US consumer confidence about the year ahead was consistent with consumer spending contracting at an annual rate of 1% - "true recession territory".

He added: "If the relationship holds as it has over the past decades then further policy action seems inevitable, be it rate cuts or tax cuts or quantitative easing. Moreover, with house prices plunging, stock prices falling and now employment declining, a rebound of any significance looks a long way off."

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