Seldom does the market disappoint both bulls and bears for long. But over the coming years the US housing market looks likely to do just that, according to a study by Harvard University.

The housing market might prove an anti-climax to all concerned, after the slump of the early 1990s and the surge of the past five years. The long period of stagnation forecast by the survey would disappoint home-owners who expect big price rises but also those who missed the boat and have been hoping for a crash.

Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard, said that although housing prices are stretched, it is hard to see the catalyst for a crisis in the market. He also added that the overvaluation looks pretty well balanced by longer-term supports for house prices, the market may just see a few years with little action. Houses will revert to being something to live in rather than moneymakers.

The study starts with some sobering observations about the record run in the US housing market. Over the past five years house prices have outstripped income growth more than sixfold - the median home now costs more than four times median household income in 49 out of 145 metropolitan areas in the US, a record. In 14 metropolitan areas, the median house is now worth more than six times median income.

Last year saw the average house price shoot up 9.4 per cent - the biggest rise in the average house price since records started more than 40 years ago. Financial strains on US homeowners have been mounting. The number of Americans devoting more than half of their incomes to housing climbed by 1.9m to 15.6m in the three years to 2004.

The Harvard reports concludes that even a slowing housing market could take a heavy toll on growth, as Americans become less able to use their houses as ATM machines and less employment is created by homebuilding. Provided the slowdown is gradual, as Harvard expects, this could help rebalance the US economy, reducing demand for imports and so stemming the growth of the trade deficit.

By M. Sese
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