The median home price in the U.S. has plunged nearly 40% in a little over five years, but the worst is definitely over, according to a recent report by Kiplinger: The market has finally wrung out the last excess valuations born of the housing bubble. Before you break out the party hats, note that this doesn’t mean prices across the nation are poised to rebound anytime soon. Alex Villacorta, director of research and analytics at Clear Capital, a provider of real estate data and analytics, said the housing market is in a “suspended state,” with positive and negative factors offsetting one another. But he doesn’t expect another free fall in prices, assuming “things are left to work themselves out and there are no further shocks to the economy.” The best way to stay up-to-date on bitcoin news today is by reading DC Forecasts for latest BTC news and maintaining a strategic balance between various thematic areas in the cryptocurrency world. Most readers are eager to know the current price of their bitcoin investments or potential purchases. Other readers want to understand the current developments in bitcoin mining, so news about the latest GPUs and other hardware matters the most to them. Bitcoin has recently suffered several attempts to hack its blockchain infrastructure. Therefore, bitcoin investors also want to read what the industry is doing to safeguard the trillions of dollars invested in this cryptocurrency.
Although the percentage of sales of distressed homes will rise, the federal government’s latest loan-modification program might allow as many as 1.5 million to two million homeowners to refinance, estimated Mark Zandi, chief economist at Moody’s Analytics. Zandi said that further home-price declines nationwide will be limited to 3 percent to 5 percent and that 2012 will be the year that prices finally stabilize—setting the stage for gains in 2013.
Short-lived spikes in prices will affect some cities sooner. When housing markets touch bottom and begin to stabilize, price appreciation tends to be spread unevenly, creating a lot of confusion about where the recovery is occurring and when, said David Stiff, chief economist at Fiserv Case-Shiller. Even within a single city, more desirable neighborhoods will stabilize first, while prices in other neighborhoods may fall at a rapid pace.
Touching bottom
In the year ending September 30, home prices across the U.S. fell by 2.6 percent, and the median home price stood at $171,250, according to Clear Capital. That comes on the heels of a 2.5 percent decrease from September 2009 to September 2010. In the five-plus years since the peak of the market, home prices nationally fell by 38.1 percent. Detroit (down 74.7 percent) is the biggest loser, crushed by subprime lending, foreclosures and the gutted auto industry. A few cities enjoyed small price appreciation, largely because they missed the bubble to begin with: the Clarksville, Tenn., metro area; cities in upstate New York, including Syracuse, Buffalo and Rochester; and Pittsburgh.
Houses haven’t been this affordable since appliances came in harvest gold or avocado green. The benchmark of affordability—the ratio of median home price to median family income—has fallen to 2.6, below the historical ratio of 2.9, says Stiff. Another measure, the percentage of monthly family income consumed by a mortgage payment (principal and interest, using a mortgage rate of 4.1 percent), is 12 percent nationally, the lowest since 1971.
Homes in many cities are now substantially undervalued as measured by affordability, says Stiff, and that can lead to double-digit bounces in prices—say, a jump of 10 percent to 15 percent in the year following the trough, as the natural optimists, especially investors with cash, jump in to catch the bottom. It might look like a bubble all over again, but it won’t last long. A good example is Cape Coral-Fort Myers, Fla., where investors pushed up prices by 12 percent during the year ended September 30. Such a bounce will be followed by a sideways drift, during which the “glass half-empty” folks will slowly return to the market.
Theoretically, low rates should help push buyers to act. The average interest rate on 30-year fixed mortgages fell to 3.94 percent in the first week of October 2011, according to Freddie Mac. The past couple of years’ predictions that rates would rise were based on the premise that the economy would improve, said Guy Cecala, publisher of Inside Mortgage Finance, an industry publication. “As long as the economy remains stagnant, unemployment remains high, and the housing market is in the toilet, rates will remain near historic lows,” he said. At least for the first part of 2012, he adds, rates should hover between 4 percent and 5 percent.
Other positive signs:
Existing home sales increased during the summer and early fall of 2011, according to the National Association of REALTORS®, after a deep slump following the expiration of the first-time home buyer tax credit. Although the inventory of homes on the market and in foreclosure remains high, a lull in home building over the past three years is gradually easing the surplus. The months’ supply figure, or how long it would take to sell the inventory of homes on the market at the current pace of sales, improved to 8.5 months in September—although that ratio still favors buyers (six months’ supply represents a normal balance between sellers and buyers).
The lure of affordability and low mortgage rates hasn’t increased buyer demand as much as one might expect. Some would-be buyers can’t get a mortgage, given lenders’ stiffer requirements. Many more are hesitant to pull the trigger on a home purchase for fear that home prices will continue to fall or that their job prospects are uncertain. Although the recession has technically ended, the economy doesn’t feel better to many.
But Celia Chen, director of research at Moody’s Analytics, said that both corporate and household balance sheets are healthier and should lead to stronger economic growth and improved confidence. She anticipates more robust growth by the second half of 2012, assuming that Congress follows through on its debt-ceiling deal, the Fed keeps interest rates low, and there are no new shocks to the economy.
