The Housing Market: Is It Really Getting Better?

June 28th, 2012 at 6:24 pm

I’ve been meaning to post these slides I put together for a housing panel last week.  Part of my rap was that there’s some evidence—dare I say it?—that the housing market has finally carved out a bottom.  I know—believe me, I know.  We’ve been here before only to have hopes dashed as home prices take another leg down.  How do I know this time is different?

I don’t, but I’ve got some indicators that are suggestive that national prices are stabilizing and that supply and demand are better aligned.  That’s not to say you can’t find places that are still over-supplied where prices are declining.  It’s not to say we’ve cleared out the foreclosure pipeline.  And millions remain underwater.

It’s only to say that we’re finally bumping along the bottom and I’m somewhat confident that national prices have stabilized and will eventually begin to rise.   (The NYT takes a similar view today…)

Here’s why.

The first figure shows a price movement we haven’t seen heretofore: an increase in the prices of distressed sales.  CoreLogic data break sales out into distressed (short sales, foreclosed properties) and non-distressed.  The figure shows that both have broken zero on a year-over-year basis, with the distressed sales up 1% over the past year.

Source: CoreLogic

That’s something we haven’t seen before: stabilization in distressed sale prices.  If it sticks, it obviously provides support to overall home prices.

Then there’s the share of distressed sales.  This next figure shows that share coming down in recent months.  Of course, it also shows those shares came down similarly a year ago.  However, if prices are truly firming up, that will improve the negative equity problem that is closely linked to delinquency and default.

Source: CoreLogic

That leads to my next slide in this cavalcade of fun for housing nerds.  Here, researchers at Goldman-Sachs have calculated the probability of default as a function of how underwater you are (that’s the loan-to-value ratios on the x-axis) for different time periods.  As you see, as time has progressed, homeowners have become less likely to default even when deeply underwater.  If that sticks, it too puts downward pressure on the distressed-sales shares in the previous slide.

Now, in reference to the title of this post, bumping along the bottom is not the same as getting better.  It’s just not getting worse.  And these days, with this housing market, that’s actually progress.

How much of this improvement is attributable to administration housing policies?  That’s a good question for another day (teaser: there’s no definitve proof, but there’s very suggestive evidence that those policies have helped).

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5 comments in reply to "The Housing Market: Is It Really Getting Better?"

  1. Chris G says:

    Okay, here’s what I see as an issue down the road – and my view is undoubtedly colored by the fact that we live in the Boston suburbs where housing prices went nuts during the boom and have remained relatively high – unless the jobs picture picks up, how is housing not going to tank again? You need a good-paying job (or two) to cover mortgage payments. Isn’t one effect of income inequality that there won’t be sufficient customers to buy all the high-priced homes on the market? People who are broke can’t afford much of a mortgage payment.

    That said, I have done a little research on the relationship between sale price and number of days on the market. They’re anti-correlated, i.e., the lower-priced homes stay on the market longer. (Well, the anti-correlation holds to a point. If the prices drops to $350k or below then they tend to get bought by developers who tear them down and build a McMansion in its place. Anyhow, that’s some info from the field.) In general, stuff that gets listed for $400-500k stays on the market considerably longer than homes in the $700-800k range. This suggests to me that the lower-upper and upper-upper-middle classes are doing better than the middle and upper-middle classes in this neck of the woods.


    • John Bennett says:

      Your optimism here ignores the fact that foreclosures have largely been on hold as the documentation has been shown to be highly questionable if not fraudulent. The banks and mortgage holders have been reluctant to proceed as their chances of success has been questionable. That will change at some point and an avalanche of for-sales will turn prices around.


      • Chris G says:

        John,
        Your comment is to Jared not me, right? I’m not optimistic by any stretch of the imagination.


        • Deman says:

          The truth is in the numbers. The average American has only 5K in their retirement, credit card debt is close to 20 trillion and rising, and student loan debt is even more than credit card. Everyone I know is getting by only day to day


          • Deman says:

            Oh forgot to mention those folks whose 7/1 option ARM just matured and whose payments just doubled and tripled for those who choose option #4 negative amortization. My associate just put his 4800 sq/ft 890K home (in 2006, now worth some where in 500K range) up for rent to help cover their new baloon payment of full principle and full interest on his new balance of well over 900K for the remaining 23 years of the loan. I just dodged a billet because I was fooled by the so call expert who said we have bottomed once again. I placed a 279K offer on a home where the owner could not come down on his 295K list price. Good thing the offer was rejected because in the last two month, five other homes in the same neighbor went up for sale, three even larger for 30K to 70K less. Thank God once again I used common cense and walked away.


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