In a sign of the current economic climate and general confusion in the financial sector, it has been announced that the cost of US homes fell by 0.6% in July this year.  The survey took in 10 of the largest US cities in order to give a balanced view, and the results do not make good reading.  Could this be a blessing in disguise, or is it too little too late?

The fact that the US economy is showing definite signs of weakness would normally be a worry, but the fall in the housing market may well stop those who are still over spending.  There has been talk of over exuberance in the US for some time, and while the Federal Bank have done their up most to try and balance the battle against inflation and the need to refrain from over spending, recent events have forced their hand of late.  While the so called credit crunch has been ongoing for some weeks now, there were no definite signs of this in July, so the fall over that period seems to have been as a result of the hike in US rates earlier in the year.

Where will the US economy go from here?

Those who say that the credit crunch is over are sadly mistaken, and there is still more bad news to come out of the sector at some stage.  The sector has been over populated for some time, resulting in some crazy investment decisions by some lenders.  The mortgage sector is set to go through a period of natural culling of certain firms whose business model and lending guidelines have no place in the current environment.  Not only will this reduce the number of players in the market, it will also reduce the competition.

A reduction in competition will reduce the need for firms to look at transactions which are not tenable going forward, which will in time increase the quality of loans, even to the sub prime sector.  No pain no gain as they say, and while the pain has only just started, the long term gains will be very much welcomed!