Tuesday, August 25, 2009
According to the Case Shiller index, which tracks home prices in 20 major metropolitan markets, home prices have fallen about 35% from their highs of three years ago in inflation-adjusted terms. Contrary to the widely-held view that the housing market is under tremendous downward price pressure due to a rising number of foreclosure sales, prices rose from March through June (though the lagging nature of this index means that home prices actually rose several months earlier). While rising foreclosures may depress prices in coming months, I'm very tempted to say that we have now seen the bottom in housing prices, at least as measured by this index. That would be very good news for home builders, banks, and all those who hold mortgage-backed securities, since it means that the number of homeowners who are "underwater" and facing foreclosure will soon be decreasing.
This surprisingly good news is fully consistent with the recovery we have seen in the market these past several months (i.e., the market has been figuring this out). Home builders' stocks have already risen over 130% from their recent lows, according to Bloomberg's index of leading home builders stocks, and bank stocks are up 150% from their lows.
As a side note, a very close acquaintance recently secured a $900,000, 30-year fixed rate mortgage with a rate of 5.375% for the purchase of a home in the Los Angeles area. I was amazed at how low the rate was (the nationwide average for jumbo loans is 6%), but he got it by putting up a 30% down payment and paying 1 point.
On the margin, this all adds up to some important green shoots in a sector of the economy that has suffered the most in recent years.
Posted by Scott Grannis at 12:05 PM