Have house prices already hit bottom?

Who's right: the experts predicting that prices will keep falling for another year or more? Or those who think we've seen the worst already?

By MSN Money Partner Jun 15, 2011 3:22PM

This post comes from Marilyn Lewis at MSN Money.

 

After a respected housing analyst pronounced the U.S. to be in a "double-dip" housing recession not long ago, contrarian analysts started popping out of the woodwork with rosier predictions.

 

You can't call them bulls. This downturn -- the worst since the Great Depression -- has made realists of nearly everyone. But these less-gloomy experts see indications that prices may already have hit bottom. Some think prices are on the way back up after the three-year rout.

 

It was in late May that David Blitzer, economist with the widely respected Standard & Poor's Case-Shiller Home Price Index, said he saw "no end in sight" for falling home prices.

 

Since then, a surge of sunnier home price reports has emerged, most in articles at HousingWire, an online publication that tracks the housing industry:

  • Clear Capital, a California company that analyzes housing markets for lenders and mortgage companies, reports that, nationally, an "uptick in distressed sale prices, combined with the upcoming summer buying season, could stabilize home prices."
  • Movoto, an online real estate brokerage, finds that median listing prices "in 16 major metropolitan areas rose in May," according to HousingWire. Many homes at the lower end of the market are being snapped up, a possible sign that the housing market bottom has been reached, the article says.
  • Experts at Altos Research, an analytics firm in Los Altos, Calif., disagree with Case-Shiller's prediction of "a downward spiral with no end in sight." "We were quite surprised to see that," Scott Sambucci of Altos Housing told investors during a presentation, HousingWire reports. "We are actually showing an uptick. There's still plenty of upside." Sambucci is not expecting a smooth ride. He calls this a "catfish recovery," after the bottom-feeding fish that surfaces and plunges repeatedly. "Expect a triple dip, a quadruple dip, and a quintuple dip" that's rife with opportunities -- and risk -- for well-informed traders, Altos says.
  • RE/MAX's May housing report shows home sales "trending positively on a monthly basis … a sign the market bottomed out at the beginning of 2011," says HousingWire. The article quotes Margaret Kelly, RE/MAX CEO: "It's a very good sign that prices are starting to rise on a monthly basis. This may indicate that we've turned the corner and are headed in a positive direction."
  • Mortgages tied to home purchases reached a recent peak in April, writes Markos Kaminis on the Seeking Alpha blog.

The bears

All this sunshine hasn't driven the housing bears into hibernation. Post continues after video.

For one example, in a keynote address this week at HousingWire's annual conference, foreclosure expert Rick Sharga predicted that "the housing market is years away from full recovery." Sharga, senior vice president of RealtyTrac, which collects and publishes statistics on foreclosures, foresees no major changes in the real estate market this year or in 2012 or 2013 because of the huge number of distressed homes coming to market.

 

For another, a home price survey by CoreLogic, a respected provider of home price analytics, found this month that while home prices were 0.7% higher in April than in March -- it was the first monthly increase in about a year -- nationally, prices in April were 7.5% below April 2010.

 

None of these dueling analyses and predictions addresses the question of who's correct. Really, no one really knows. These are educated guesses, some more educated than others, each based on slightly different information. Movoto, for instance, tracks listing (or asking) prices. In this climate, homes typically sell for a discount from the listing price. Case-Shiller, on the other hand, bases its reports on selling prices.

 

Perhaps, as another HousingWire article says, there are just too many analysts and home price studies. "The plethora of home price indices muddle the market data," says the article, quoting analysts at Capital Economics.

 

"For anyone bamboozled by the abundance of house price indices, which can sometimes provide starkly different messages, we consider the Case-Shiller and CoreLogic indices to be the most useful and reliable," Capital Economics said.

 

"As it stands now, most of the evidence suggests that house prices are still falling, and in some cases at an accelerating rate," the Capital Economics analysts said.

 

Yet another HousingWire article sums up the serious problems that remain:

Home prices have dropped more than 30% from their 2006 peak, housing starts are one-third the rate prior to 2005 and 3.5 million existing homes are on the market with another 3.8 million units in the shadow inventory. Foreclosures remain high and one in four homeowners is underwater, owing more than their homes are worth.

Even the optimists, like the Movoto analyst, are cautious:

Marc Brandemuehl, vice president of marketing at Movoto, said while the numbers are encouraging, they do not signal a recovery. Instead he said prices are incrementally gaining strength and should keep trending in that direction.
"I'm not too sure May price(s) mean recovery because there are still so many properties in the foreclosure system," Brandemuehl said. "We feel the real estate market has bottomed out. We don't see that happening again unless there are some big changes made in the mortgage market."

More on MSN Money:

VIDEO ON MSN MONEY

1Comment
Jun 16, 2011 10:11AM
avatar

Housing, unlike other products, is a necessity.  You own or rent, but you live somewhere.

 

The overhang in the market will eventually draw down, and that will be the point where housing prices will stabilize.  Housing always returns.

 

But because it's a big investment it will take time for people to feel confident that they aren't catching a falling knife by starting out owning something that loses value over years. 

 

Although housing prices have always followed the ebb and flow of the general economy and interest rates, home ownership is still desirable.  Even investors who bought at fire sale prices are now running out of money.  And banks are coming to the realization that owning millions of vacant homes, (and therefore  a non performing asset,)  is a fools game. Many homes that have been empty for considerable periods will need to be bulldozed because there is nothing left to salvage. Homes need occupiers to keep the hot water heaters on, refrigerators cool, pipes used and keep varmint and mildew out.

 

The end to this crisis is coming. People still want and need a home and will buy when the tipping point is reached. No one knows exactly when that may occur, but it isn't forever either.

 

 

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