Warren Buffet has declared that the US property crisis is over.According to Buffet's recent report, the US property market bubble was created by a number of years of over supply of new properties, where around 2 million extra homes were being made available each year when actual demand only required 1.2 million.
After a few years of over supply the US ended up with way too many houses.
And so the bubble burst. Prices plummeted and, according to Buffett, the US had to choose one of three possible recovery routes.
- Blow up a lot of houses, a tactic similar to the destruction of autos that occurred with the cash-for-clunkers program,(the US version of our car scrappage scheme).
- Speed up household formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers.
- Reduce new housing starts to a number far below the rate of household formations.
Over the last few years the US has followed route 3, with this massive reduction of supply Buffet perceives a stabilising of property prices.
The Economist compounds Buffets view and now sees that US property prices are 3% below the long term trend.
This over supply is in stark contrast to the UK property market where we have not seen the same levels of over supply, and are still seeing new home building supply running at a deficit to demand.
Read more on Warren Buffets declaration in ThisisMoney
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