Thursday, June 21, 2012

Housing price update

The top chart shows real median home prices for sales of existing single family homes on a non-seasonally-adjusted basis (prices typically rise in the first half of each year, then typically decline). The bottom chart shows the year over year change in these prices in order to factor out the seasonal trends. As both charts suggest, we have likely seen a bottom in home prices, at a level that extends back to the 1970s. Real home prices hit decades-low levels and in effect they were even much cheaper thanks to record-low financing costs.

Message: the housing market has found a market-clearing level of prices, and demand is now picking up. Demand could outstrip supply—even if all those foreclosed homes held on banks' balance sheets were released for sale—if the public begins to catch on to the fact that homes are beginning to rise in price at a time when prices are still incredibly low. The very low level of mortgage rates tells us that the demand for purchasing homes is still incredibly weak; there are likely legions of buyers who have been sidelined for fear that prices would continue to decline given the economy's ongoing weakness and the overhang of under-water homeowners.

Although May sales of existing homes were slightly lower than in April, I think this chart makes the larger point that the volume of sales is trending higher from recession lows. There is lots of pent-up demand and it is slowly but surely coming back.


seekingtraceevidence said...

I am told that regulators forced loan FICO scores shubstantially higher last summer with the Greek debt issues and high they remain today. Is there a way to track what the average loan FICO is?

Unknown said...

Scott - you are being fooled by supply side manipulation. Please dig into the numbers. MLS inventory dropped in half as the banks stopped releasing REO's to the market. This has created a short term stabilization.

46 months to clear the Shadow Inventory

90+ day mortgage delinquency rate is still near 10%. In normal markets this is close to 1%.Does anyone really think house prices can begin a sustained rally until the delinquency rate gets back to normal?

The increased supply and diminished demand will be a problem for several more years. In the process of clearing out the inventory, lenders will stifle any market rally. That’s the essence of the problem with overhead supply.

Foreclosure starts rose in May from a year earlier for the first time in more than two years after the largest U.S. loan servicers settled with states over faulty documentation.

Every lender and many loan owners are sitting on the sidelines waiting for an opportunity to sell. There is no pent-up demand, but there is plenty of pent-up supply.

Unknown said...

And please, please go find some other source of stats than the NAR. It is a completely morally bankrupt organization that has been caught outright lying in their statistics multiple times.

It is incredible to me you even publish their data after they have caught fudging it for years.

William said...

Unknown If you data is correct, you make a lot of sense.