This winter will see a softening of prices in most parts of the country. If you are considering selling your home in the near future, you should talk with me today, 804-980-7906. That being said, I want to explain the magnitude of the challenge.
The FHFA just released their third quarter House Price Index. In the titled they claimed: U.S. House Prices Fall 1.6 Percent in the Third Quarter; Declines in Most Parts of the Country
What is the FHFA HPI?
Federal Housing Finance Agency (FHFA) explains their pricing index this way:
The HPI is a broad measure of the movement of single-family house prices. It serves as a timely, accurate indicator of house price trends at various geographic levels. It also provides housing economists with an analytical tool that is useful for estimating changes in the rates of mortgage defaults, prepayments and housing affordability in specific geographic areas. The HPI is a measure designed to capture changes in the value of single-family houses in the U.S. as a whole, in various regions and in smaller areas. The HPI is published by the Federal Housing Finance Agency (FHFA) using data provided by Fannie Mae and Freddie Mac.
How widespread are price declines in the report?
The easiest way to explain this is to show the pricing map contained in the report:
The majority of states have experienced weakening in house values. Many experts predict this will continue throughout the next several quarters. If you are considering selling in the near future, call me today so we can determine where prices are headed in your neighborhood.
For some time now, we have attempted to shed light on the fact that pricing in today’s real estate market will be determined by the concept of ‘supply and demand’. If supply continues to increase and demand softens (or even remains constant) prices will continue to fall. Even the National Association of Realtors (NAR) has acknowledged this to be true.
The supply of inventory in the real estate industry is defined by the current months’ supply of homes that is available for sale. There are no steadfast rules that will apply to every category of housing. However, here is a great guideline by which to go:
- 1-4 months’ supply creates a sellers’ market where there are not enough homes to satisfy buyer demand. Appreciation is guaranteed.
- 5-6 months’ supply creates a balanced market where historically home values appreciate at a rate a little greater than inflation.
- 7-8 months’ supply creates a buyers’ market where the number of homes for sale exceeds the demand. Depreciation follows.
Where do we stand today?
According to NAR’s most recent Existing Sales Report, there is currently a 10.5 months’ supply of homes for sale. We can see, based on the guideline above, we are in a buyers’ market and that prices will continue to soften. The other statistic we must watch is the number of months’ of shadow inventory which will be coming to market.
CoreLogic just released their November report (which covers August). They estimate shadow inventory:
… by calculating the number of properties that are seriously delinquent (90 days or more), in foreclosure and real estate owned (REO) by lenders and that are not currently listed on multiple listing services (MLSs). Shadow inventory is typically not included in the official metrics of unsold inventory.
The report showed that shadow inventory jumped more than 10% in the last year, pushing total unsold inventory to 2.1 million houses.
That represents another 8 months of supply.
The Wall Street Journal reported that some analysts have said CoreLogic estimates look rather low.
Laurie Goodman, senior managing director at Amherst Securities Group, has warned that as many as seven million homes could end up in banks hands unless more aggressive modification regimes are put in place.
Barclays estimates that another 3.76 million homes are either in the foreclosure process or are at least 90 days delinquent but not yet in foreclosure.
Most industry experts are projecting just that – an additional fall in prices of between 5-20%. Mark Fleming, chief economist for CoreLogic commented:
“The weak demand for housing is significantly increasing the risk of further price declines in the housing market. This is being exacerbated by a significant and growing shadow inventory that is likely to persist for some time due to the highly extended time-to-liquidation that servicers are currently experiencing.”
I was once told a good decision is only as good as the facts. I open this BLOG post with a question for every homeowner who is thinking about selling their home this upcoming spring…if you were to be honest…do you think property values will be higher this spring? This is a question anyone thinking about selling must ask. Should they sell now or should they wait for the spring? Most years that would be an interesting question. There is a belief that many buyers come out in the spring and, with that increase in demand for housing, prices may appreciate. This year is unlike any year in recent memory. Most experts believe there will be continuing depreciation of home values throughout the next 18 months.As I posted on recent BLOG post, there may be a window of opportunity throughout the rest of 2010 as the banks try to straighten out the paperwork on thousands of foreclosures. Once that paperwork is corrected, the flow of distressed properties coming to the market at discounted prices will begin again.
This was mentioned in the latest Home Price Expectation Survey. Robert Shiller, MacroMarkets co-founder and chief economist said this:
“Over the past month, the average projection for 2010 nationwide home price performance improved slightly among our experts, but for each year thereafter it deteriorated. One plausible explanation for this month’s more negative overall sentiment is recent news concerning foreclosure processing questions and the related possibility of extending the supply pipeline.”
Other experts are also reporting that prices will soften next year
In October’s RPX Monthly Housing Market Report, CEO Michael Feder commented:
“We are at a flex point in housing valuation. With record supply, already paltry demand and systemic threats to a possible correction, we remain terribly concerned about forward home prices.”
The very next day, in a special release, Clear Capital reported a “sudden and dramatic” drop in U.S. home prices:
Most recent data shows a two-month 5.9% price decline representing a magnitude and speed of decline not seen since March 2009; similar declines for September and October expected to appear in other industry indices in coming months.
If you plan to sell within the next year, you shouldn’t wait for the spring market. Price the home at a compelling price to make sure it sells in the next sixty days. I would welcome the opportunity to chat with you about your homes market value.
Strategic defaults lead to foreclosures. It is important to realize that an increase in the number of foreclosures will dramatically impact any possible housing recovery. A loss of income or an increase in negative equity (where the house is worth less than the mortgage on the house) are the two main reasons that will cause a homeowner to strategically default.
The Wall Street Journal reported on the impact of negative equity on strategic default:
Most defaults are typically driven by a combination of income shock and negative equity, or what’s known as the “double-trigger” hypothesis. While borrowers who lose their jobs but have equity in their homes can sell and avoid default, those without any equity are left with fewer options.
Are strategic defaults about to skyrocket?
This week, Clear Capital sent out a special release where they reported:
This special Clear Capital Home Data Index (HDI) alert shows that national home prices have declined 5.9% in just two months … This significant drop in prices, in advance of the typical winter housing market slowdowns, paints an ominous picture.
The reason this caught our attention is that the 5.9% equated with a number we recently read on strategic defaults. CoreLogic in their most recent Negative Equity Report stated:
11 million, or 23 percent, of all residential properties with mortgages were in negative equity at the end of the second quarter of 2010 … An additional 2.4 million borrowers had less than five percent equity.
Almost two and a half million homes were within 5% of negative equity and prices just fell over 5%. Strategic defaults may soar! The CoreLogic report quotes Mark Fleming, their chief economist:
“Negative equity continues to both drive foreclosures and impede the housing market recovery. With nearly 5 million borrowers currently in severe negative equity, defaults will remain at a high level for an extended period of time.”
What about the ethical responsibility to pay our debts?
As the housing crisis has savaged more and more families, there seems to be a growing number of people who now see strategic default as acceptable. According to a recent Pew Research Center survey:
More than a third (36%) say the practice of “walking away” from a home mortgage is acceptable, at least under certain circumstances … two-in-ten (19%) say it’s acceptable and an additional 17% volunteer that it depends on the circumstances.
There will be more strategic defaults as prices fall. That will mean more foreclosures which will cause prices to fall leading to more homes in negative equity. An increase in negative equity will create more strategic defaults which will cause…
That is the vicious cycle we must break.
by The KCM Crew
The private-sector Case-Shiller Index reported home values up 5 percent nationwide in June. The government’s own Home Price Index, however, reached a different conclusion.
According to the Federal Home Finance Agency, month-to-month home values fell 0.3 percent in June, and values are down by 1.7 percent from June 2009.
So, as a home buyer and/or homeowner in Fort Lee , by which valuation model should you make your bets? Perhaps neither.
This is because both the Case-Shiller Index and the Home Price have inherent methodology flaws, the most glaring of which is their respective sample sets.
The Case-Shiller sample set, for example, comes from just 20 cities across the country — and they’re not even the 20 most populated cities. Together, the Case-Shiller cities represent just 9 percent of the overall U.S. population.
That’s hardly representative of the housing stock overall.
By comparison, the Home Price Index tracks home sales everywhere — every city in every state — but it specifically excludes certain properties. The Home Price Index does not track sales of homes for which the financing comes from agencies other than Fannie Mae or Freddie Mac. This means that as FHA loans grow in popularity, the pool of Home Price Index-eligible homes is reducing.
The HPI ignores homes backed by “jumbo” loans, too.
Therefore, the “right” model for home values cannot come from national data at all — it can only come locally. Neither Case-Shiller nor the government has the tools to get as granular as a neighborhood like The Highlands. A real estate agent in the area does, however.
The best way to get a pulse for what’s happening in markets right now is to talk to somebody with good data.
With home prices holding firm and mortgage rates still dropping, home affordability is reaching new heights.
According to the quarterly Home Opportunity Index as published by the National Association of Home Builders, more than 72 percent of all new and existing homes sold between April-June 2010 were affordable to families earning the national median income.
It’s a slightly higher reading as compared to last quarter, and the second highest reading in the survey’s history.
As with all aspects of real estate, however, home affordability varies by locale.
For example, 97.2% of homes sold in Syracuse were affordable for families making the area’s median income, earning the New York city its first “Most Affordable Major City” designation. Indianapolis was the first quarter winner.
On the opposite end of the spectrum, the “Least Affordable Major City” title went to the New York-White Plains, NY-Wayne, NJ area for the 9th consecutive quarter. Just 19.9% of homes are affordable to families earning the local median income, down 1 percent from last quarter.
The rankings for all 225 metro areas are viewable on the NAHB website but regardless of where you live, buying a home is as affordable as it’s ever been in history. Furthermore, because home values are in recovery and mortgage rates may rise, the market is ripe for home buyers in Meadowville Landing.
All things equal, buying a home may never be this inexpensive again. If you were planning to purchase later this year, you may want to move up your time frame.
June 22 (Bloomberg) — Sales of U.S. previously owned homes unexpectedly fell 2.2 percent in May to a 5.66 million annual rate, a sign demand was probably pulled into prior months before a June tax-credit deadline. Bloomberg’s Mike McKee reports.
With home prices still relatively low and mortgage rates trolling near their all-time best levels, it’s no surprise that home affordability is extraordinarily high in Chesterfield and most U.S. markets.
According to the quarterly Home Opportunity Index as published by the National Association of Home Builders, more than 72 percent of all new and existing homes sold between January-March 2010 were affordable to families earning the national median income.
It’s the second highest reading in the survey’s history.
Of course, on a city-by-city basis, home affordability varies.
In the first quarter of 2010, for example, 98.7% of homes sold in Bay City, Michigan were affordable for families earning the area’s median income and in Indianapolis, the percentage was almost 95 percent.
Indianapolis has held the top quarterly ranking for close to 5 years now.
On the opposite end of the spectrum, the New York-White Plains, NY-Wayne, NJ region earned the “least affordable” metropolitan area for the 8th consecutive quarter. Just 20.9% of homes are affordable to families earning the local median income.
The rankings for all 225 metro areas are available on the NAHB website but regardless of where your town ranks, home affordability remains high as compared to historical values but it likely won’t last long. Home values are recovering in many markets and mortgage rates won’t stay this low forever.
All things equal, buying a home may never come this cheap again. If you were planning to buy later this year, consider moving up your timeframe.
Ouch. So much contradicting news out there. You have two sides of the fence. One stating the housing market is improving and then the other who claim it’s not over yet. It will be even more confusing this month when the housing numbers for April come out. There will be a BIG surge with the housing numbers and everyone will think “Glory Days Are Hear Again.” I’ll call this “Hope Over Reality.”
Truly, what the government incentive program has done is caused anyone who was going to purchasing a home in 2010 to up their purchase to an earlier time to be able receive the financial benefit. No one or financial prop is going to make someone wake up and say…let’s buy a home. This decision is made because of a life changing situation, period. The housing market is what it is and until the inventory is a balanced point…somewhere between 4-6 months the housing market will continue to experience the challenges and unfortunately, adjustments in prices. It is basic economics of supply and demand.
Nationwide there is a 16-24 month supply of housing inventory including residential resales, new and bank owned properties. With a forecast that housing values will decline another 10-15% nationwide in 2010.
What this all means to the homeowner who is thinking about selling is be smart and price your home so that it will be one of the few which a home buyer will buy. What’s the old saying…”information is power or is it…the correct use of information is POWER.”
Freddie Mac Falls After Seeking $10.6 Billion From Treasury – Bloomberg.com
Freddie Mac, the mortgage company operating under U.S. conservatorship, fell 8 percent in New York trading after requesting $10.6 billion more in Treasury Department aid while reporting a first-quarter loss.