The housing market is a mess. There’s still much too much inventory, too many homeowners are underwater, prices have yet to hit bottom, and, like the first picture below shows, while foreclosures and delinquencies appear to have peaked, they’re still way high.
I’d also say this is the most important factor holding back economic growth. Housing, and furnishing new homes, is an important way that low interest rates give the economy some real lift coming out of recessions. But with this messy residue from the bursting housing bubble gumming up the works, that channel’s been effectively shut down.
But here’s some, well, if not “good” news, then at least another way to look at the bad news. CoreLogic tracks home prices, and usefully, does so looking at both overall and non-distressed sales. Distressed sales are bank-owned properties and homes heading toward foreclosure; they’ve run as high as 50% of total sales over the past year but they’re coming down, maybe to around a third next year, according to economist Mark Zandi.
The table shows the change in prices over the past year in a number of our largest urban areas. In every case, the price changes excluding distressed properties are less negative—and a bunch are positive—compared to the overall changes, which include the distressed sales.
This is what you’d expect. There’s often more pressure to sell foreclosed properties; banks don’t want them on their books, and as you can see, they’re dragging down prices across the nation.
Here’s where the first chart above is again important. The overall price change is a weighted average of the price change in the share of distressed homes and the price change in non-distressed homes. If the share of distressed homes has peaked and is truly coming down, its weight in that price calculation will diminish and since they’ll be a smaller weight on the bigger negative, they’ll be less downward pressure on overall home prices.
Given the levels of distress in the first chart, we’re far from out the housing woods, but the combination of the apparent peak in foreclosures/delinquencies in tandem with the better price performance of non-distressed sales suggests a pinprick of light at the end of what’s been a terribly deep and dark tunnel.