Merrill Lynch expects fall in US housing market

According to a report from Merrill Lynch, the huge growth in the price of homes in the United States will soon decline due to the fact that demand will drop because fewer and fewer first-time buyers can afford the steadily rising housing prices.

The average price for a first home has increased by 14 percent in the past year, while the average income for a families looking to buy their first home has increased by only 4 percent in the same period.

This has led to a situation in the market that has not been seen since the third quarter of 1989, when new home sales fell by 20 percent after a steep increase in prices. At that time, the inventory of new homes rose from a 7.1 month supply to an 8.4 month supply and the median price of a new home fell by 5.8 percent as a result.

The current housing bubble in the US has been supported by low interest rates on mortgages, and demand has sent prices up by 50 percent in the past 5 years. Some analysts however, believe that while prices might decline in some local areas, prices will not decline on a nationwide level in the near term.

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