Since the beginning of the house-price crash in 2007 almost every analyst has predicted that “the bottom” in house prices is just around the corner. As you know they were wrong every time. But maybe now, finally, it looks as though house prices may actually be nearing a bottom.
Why you ask?
Well it is being reported that after falling nearly 35% from their 2007 peak, nationwide house prices are finally approaching “normal” levels on two key valuation measures: The “price-to-rent ratio,” which measures house prices relative to what the houses might rent for, and the “price-to-income ratio,” which measures house prices relative to average incomes.
Economists at Goldman Sachs, using the first ratio have concluded that national house prices will decline another 2.5% in 2012 and then possibly bottom over the course of the following year.
As we all know house prices differ markedly depending on where you live. The report by the Goldman Sachs analysts have considerably different predictions for different markets. Prices in New York, Portland and Atlanta, Goldman predicts, will still see significant declines. While prices in Detroit, Miami and Cleveland should rise.
Most importantly, after a price bubble similar to the one the U.S. just experienced, prices often don’t stop at “average” levels on the way down. They often plunge straight through “fair value” and spend years below average levels. And that certainly could happen to house prices this time around.
The report states that they believe house prices will level out in a year or two. Keep in mind that even if house prices do bottom in 2013, that doesn’t mean that they’ll quickly shoot up again.
It has been reported that more than one in five American home mortgages are underwater.
The estimate is that 10.7-million households, or 22.1% of all homes with mortgages, had more debt on the properties than they were worth in the third quarter. The report was released by the firm CoreLogic. This is a slight decline from the 10.9 million properties that were underwater in the second quarter.
Although slightly down, negative equity remains very high and renders many borrowers vulnerable when negative economic shocks occur, such as job loss or illness. The nearly $700-billion mortgage debt overhang has touched many corners of the market, and this overhang is holding back the recovery of the housing market and broader economy.
Nevada had the highest negative-equity percentage with 58% of mortgaged homes underwater, followed by Arizona, 47%; Florida, 44%; Michigan, 35% and Georgia, 30%. This was the first quarter that Georgia made the top five, ousting from the group California, which had been among the top spots since the firm began tracking the data in 2009.
In the Los Angeles Metro area, 353,427 homes, or 23% of all mortgaged properties, were in negative equity at the end of the third quarter, a decline from 356,677. Negative equity can decline when foreclosures increase as the repossession process extinguishes underwater loans.
A closely watched survey reported Tuesday that U.S. single-family home prices declined in September. This report highlight’s the fragility of a market as it struggles to get back on its feet.
As reported by The S&P/Case Shiller composite index, 20 metropolitan areas fell 0.6 percent from August on a seasonally adjusted basis.
Prices in August were also revised to show a decline of 0.3 percent after originally being reported as unchanged.
The broader trend here is that it appears that home prices over the last few months continue to get weaker.
This ties in with the current consumer attitude that has gotten a lot of more negative, particularly when it comes to making a long-term commitment, such as buying a home.
The index has leveled off in recent months and analysts are hoping the market is at least stabilizing.
Also over the last year home prices in most cities drifted lower, but the plunging collapse of prices seen in 2007-2009 appears to be behind us. Any chance for a sustained recovery will probably need a stronger economy.
The report also pointed out that third quarter prices were down 1.2 percent from the previous quarter on a seasonally adjusted basis and were down 3.9 percent from the third quarter a year ago.
Compared to a year ago, price declines in the 20 cities continued to improve in September and were down 3.6 percent after a year over year decline of 3.8 percent the month before.
