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…)
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.
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.
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).