"I've Never Seen A Slump Like This That Didn't Spread To The Whole Country"

Dark clouds gather over the US housing market - If the fall we are seeing at the top spreads, the impact could be significant.

The US economy is white hot. Consumer confidence is higher than it has been since the 1990s. Unemployment just hit its lowest level since 1969. Using amazingly bold language for a central banker, US Federal Reserve chairman Jay Powell says he is “very happy” about the “ remarkably positive” outlook which he predicts may continue “for quite some time”. So why, amid all this good news, is the US housing market slowing?

It is a hugely important question, because housing is still where the majority of Americans keep most of their wealth, and it has been a traditional bellwether for economic trends. Nationwide, sales and building permits are down. Several once soaring markets, including New York City, the San Francisco area, and Denver, have been softening. Construction activity has been slowing, too, which is a concern given the disproportionate role that home building plays in US economic growth.

The problem is, ironically, the growth of the housing market itself, which has been bifurcated and has outpaced the ability of most consumers to pay for shelter.

Just as there is now a “superstar” effect of winner-takes-all in countries, industries, and even companies, so too is there one in the housing market. If you look at the 20-city Case-Shiller index of home prices as a whole, there would seem to be little cause for concern — it is just 2.4 per cent above its 2006 peak. And yet, there is a huge divide between the winners and the losers. Ten cities have set new highs and their prices are 23 per cent higher on average. The best performer, Denver, is a whopping 54 per cent above its pre-recession peak. Meanwhile, prices in 10 laggard cities are an average of 11 per cent below their pre-recession peaks. In housing, as in all else, the US is incredibly divided.

The top cities rise because they are where the jobs are (job creation is also incredibly bifurcated). Yet house prices in those cities have risen much faster than wages themselves.

That has, in turn, made it harder and harder for middle-class peopl

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