After a year of record-setting losses in home values, new first-quarter data show prices stabilizing a bit. Is this the ray of hope homeowners have been waiting for?
"Certainly there is some evidence that in some markets the rate of price declines may have lessened significantly," said Andrew Leventis, a senior economist for the Federal Housing Finance Agency. "(But) it's hard to know whether we're close to the bottom or not."
Released today, the FHFA quarterly report on housing prices shows homes rose in value last quarter, up 0.4% from the fourth quarter of 2008, and have recorded a loss in value of just 3.3% over the last four quarters.
A statistical blip or a sign of a turnaround? It could be either, Leventis said.
"Measuring house price changes is fraught with peril," he said. Perhaps even the welter of recent contradictory economic indicators -- some showing improvement, others continued distress -- makes buyers believe prices have hit bottom, he said. "Changes in expectations can really drive prices."
For example:
- The National Association of Realtors said today that existing-home sales climbed 2.9% in April, beating expectations and supporting the view that the housing market is nearing a bottom. "Most of the sales are taking place in lower price ranges, and activity is beginning to pick up in the midprice ranges, but high-end home sales remain sluggish," NAR chief economist Lawrence Yun told reporters.
- The S&P/Case-Shiller U.S. National Home Price Index, another prominent barometer, shows that prices fell 19.1% in the three months of this year compared with the first quarter of 2008 and have been driven to levels last seen, on average, in late 2002. Case-Shiller includes homes sold with all types of mortgages in 20 select cities.
- The FHFA's house price index has a much broader reach: 292 cities. But it excludes homes bought with jumbo mortgages ($417,000 or more, depending on the region, and not guaranteed by Fannie Mae or Freddie Mac), which makes the result less volatile but also less likely to show the full extent of falling prices.
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- Yet another survey, by First American CoreLogic, found prices down nearly 12% in February from the same time last year. This index, the LoanPerformance HPI, tracks repeat sales of the same properties in 676 counties located in all 50 states and Washington, D.C.
- iShares Dow Jones US Home Construction, an exchange-traded fund, is another indicator of price direction. It's in the tank because of historically low building activity.
- The Consumer Confidence Index leapt unexpectedly in May to 54.9, compared with 40.8 in April. A reading of 90 or greater is considered good. The survey also found that the percentage of consumers predicting growing unemployment fell, to 25.2% from 32.5%. "While confidence is still weak by historical standards, as far as consumers are concerned, the worst is now behind us," said the Conference Board, the private research firm that produces the reading, in a news release.
Although the rate was slower, home values continued to fall across 272 of the 292 cities in the FHFA index. The worst losses -- 37.8% in the quarter -- were in Merced, Calif. Prices rose most -- 4.1% for the quarter -- in Corpus Christi, Texas.
"The million-dollar question," Leventis said, "is, how much are distress sales affecting house prices?" His research shows that in California about 2% of last year's 22% decline in prices was due to foreclosures and distress sales. "It's small but significant."
Unemployment's the villain
It's safe to say, though, home prices will stay stuck in reverse or, at best, in neutral, as long as foreclosures keep flooding markets with fresh homes for sale, and foreclosures are growing as joblessness pulls down homeowners with good credit.By late 2008, according to the Mortgage Bankers Association, 7.88% of all mortgages were 30 days or more overdue, and 3.3% were somewhere in the process of foreclosure. These numbers are the highest on record in the 37-year-old survey. For decades, even in recessions, foreclosures were no more than 1% and rose significantly only in 2001, passing 2% in late 2007.
California, Florida, Nevada, Arizona and Michigan dominate delinquency statistics, but the bankers association also found sharp increases in Louisiana, New York, Georgia, Texas and Mississippi as the recession spread.
"The problem loans are increasing, not because of the quality of the loan but because of unemployment, because of the severe recession we're in," says David Berson, the chief economist at The PMI Group.
- Video: Home sales up; prices down
This is a significant shift. Not long ago, subprime loans were the villain in the foreclosure story. Many who bought them were poor credit risks. They could afford the low-rate introductory periods but fell behind when the adjustable interest rates rose, pushing the payments impossibly high. Most subprime loans that were going to default have done so by now.
"Many of those borrowers have been refinanced, or they've been foreclosed up," Berson says.
These days, unemployment -- job losses are running 665,000 a month this year -- is shoving people out of their homes by the millions. A recent analysis by The New York Times of data from First American CoreLogic shows that in February about 4 million loans worth $717 billion were delinquent or in foreclosure, or the homes had been seized by the bank -- 60% over last year at the same time.
With unemployment at 8.9% and expected to pass 10%, experts are bracing for many, many new foreclosures. "We would not be surprised to wind up at 1.2 million (foreclosures initiated) at the end of this year," says Rick Sharga, the vice president of marketing at RealtyTrac. Before late 2006, when the foreclosure tsunami began, a normal year saw about 120,000 to 150,000 foreclosures.
Where's it headed? "It's getting worse," says Sharga. In March alone, 341,000 households got foreclosure notices. That was a stunner, Sharga says, but it made sense: Foreclosure moratoriums that government and banks had imposed at Christmas ended in early March, throwing a backlog of seized homes onto the market.
But that wasn't the end of it. April was another record-breaking month, with 342,000 new foreclosure notices issued. "Historically, delinquencies and foreclosures tend not to peak until after the job market bottoms," which could be sometime in the middle of next year, Berson says.
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There are possible signs that some places are getting more sales or prices have slowed their downward movement. Another thought I have on this matter is that prices may not bounce back to their 2006 levels at all. I believe that was a bubble,so a recovery would just mean no more price drops.