It is probably inaccurate to say that the global economy has not recovered from the Global Financial Crisis yet. However, it is clear that global growth has been pretty anaemic since it ended which is exemplified by the fact that a number of central banks are still holding interest rates at or near historic lows for fear that easing back towards historic average levels will trigger a further slowdown in economic activity. In some regions, unemployment remains uncomfortably high and younger workers are disproportionately affected.
One portent of a sluggish economy has been new house sales since builders are reluctant to create properties that they can’t guarantee to sell and buyers are unwilling to saddle themselves with new, significant debt if they fear for their job and promotion prospects. Therefore, the news that sales of new houses in the USA in July were up by 12.4%, month on month, to a seasonally adjusted figure of 654000 can only be seen as good news. The figures from the US Commerce Department reveal that the July performance is the best seen in nearly nine years, before the Global Financial Crisis really started to bite.
However, the picture remains complex as the available stock of new housing slipped from 5.2 months of supply to 4.3 in July implying either that the construction rate had slipped or that it wasn’t keeping pace with demand. The mortgage market has been supported by historically low interest rates, making purchasing of homes more affordable and the strengthening of the US employment situation over the past couple of years. Of course, if the Federal Reserve increases interest rates, this will inevitably feed through into higher mortgage costs, thereby exerting a negative pressure on home construction. Most observers are expecting a further one or two incremental rises to be announced by the Fed before the end of the year.