Four month on US property market sees little impact from Obama stimulus plan

Four months after President Barack Obama pledged $275 billion to boost the residential property market there has barely been an improvement with banks still reluctant to lend and the number of foreclosures continuing to rise.

Some professionals in the real estate industry are now predicting that the explosion of For Sale signs is unlikely to abate and they put the blame firmly in the hands of the banks.

Bruce Norris, head of California based Riverside, a company that buys and renovates properties to rent or sell, said that more individuals would buy if they could get the money. 'Investors would buy if the banks would just extend some credit. A lot of properties are going to sit vacant,' he said.

About 50% of banks have tightened requirements for prime borrowers in the first quarter of this year, asking for bigger down payments and more cash on hand. Also stricter qualifying rules and a rise in the cost of residential loans to 5.42% are holding back new mortgage lending which is at a 13 year low. It is estimated that there are currently 2.1 million unoccupied houses on the market.

The $8,000 first time homebuyer tax credit that is part of Obama's economic stimulus package and a government program to subsidize some mortgage payments have had little effect, according to Eric Belsky, executive director of Harvard University's Joint Center for Housing Studies.

'It hasn't been more than a see-sawing of data. Property has led the US economy out of every recession for at least 50 years but for that to happen again more stimulus is going to be needed,' he explained.

Existing US home sales in May rose 2.4% to an annual rate of 4.77 million, lower than forecast, and the median price was down 16.8% from the same month in 2008, according to figures from the National Realtors Association.

But there's little chance the turnover will increase enough this year to end the housing recession, according to Andres Carbacho-Burgos, an economist with Moody's. 'We have a lousy job market and an excess of around a million extra homes that has to be worked off. The housing market is not going to hit bottom before the middle of 2010,' he said.

People are scared to spend the money because they're worried about losing their jobs according to Nariman Behravesh, chief economist at HIS Global Insight. Indeed unemployment reached a 26 year high of 9.4% in May.

The numbers of foreclosures are expected to keep increasing. 'The foreclosure wave is not over. That's why we don't see a bottom in housing yet,' said Susan Wachter, a real estate professor at the University of Pennsylvania's Wharton School.