Speculation that the US Federal Reserve will order a second, aggressive half-point cut in American interest rates next week mounted yesterday after further bleak news from America’s housing market fuelled fears that it is succumbing to a drastic crunch.

US house prices slumped yet further last month, while another steep drop in the numbers of homes being sold pushed the size of stockpile of properties on the market to a 22-year high, piling still more downward pressure on to prices.

The severity of the bad news fuelled expectations that another cut in interest rates from the Fed next week is now a racing certainty, with a growing number of economists expecting that the US central bank will match September’s half-point cut as it acts to shore up the American economy and stave off a growing threat of recession.

Yesterday’s grim figures from the US National Association of Realtors showed that sales of existing homes, as opposed to newly built properties, across American fell by a sharper than forecast 8 per cent last month, taking the pace of sales to an annual equivalent rate of 5.04 million, the lowest level since present records began in 1999.

At the same time, average prices for existing homes were down last month by 4.2 per cent from a year earlier, at $211,700.

Economists gave warning that the impact of the slow pace of property sales in creating a growing stockpile of unsold properties would inevitably drive prices still lower, with some predicting that the average value of a US home could soon end up down by as much as 10 per cent year-on-year.

Last month’s data showed that the stockpile of properties now on the US market rose by a further 0.4 per cent, to 4.4 million. That was equivalent to 10.5 months’ supply at the pace of selling achieved in September, the worst such figure since 1999. Based on so-called “single-family homes” alone, the 10.2 months’ supply of properties available was the largest stockpile for more than two decades.

“It suggests that there is massive downward pressure on house prices,” said Paul Ashworth of Capital Economics. “The credit crunch has clearly had a devastating impact on an already weak housing market. This is much worse than even housing bears like ourselves thought it would get.”

Other analysts agreed that the impact of the credit squeeze in the US, in leading to tighter lending conditions and tougher mortgage conditions for would-be buyers, was a crucial factor in the growing housing market crunch.

ING Financial Markets noted that with interest rates on so-called “jumbo” mortgages for more than $417,000 still some 0.7 to 0.8 per cent above industry benchmark levels, the high end of the US housing market was being “suffocated”.

A separate report underlined the difficulty that US homebuyers are experiencing in securing the loans they want. Although home sales are down sharply, numbers of mortgage applications made last week were still 11.5 per cent above levels a year ago. Analysts said this because of prospective borrowers having to make multiple applications to secure a single loan.

Japan blow

A toughening by Japan of its buildings code to ensure homes meet earthquake protection rules threatens to have a seismic impact on third-quarter GDP growth. Confusion over the rules has led developers to slow construction, with new housing starts down 43 per cent in August from a year earlier. There are warnings that the toll could even see GDP fall for a second quarter in a row, tipping Japan technically into recession.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive