Friday, May 25, 2007

Housing Prices Seen Heading Back in Earth's Direction


Are home prices coming back to earth? (graph from Most indicators seem to be pointing that way, especially those based on rising inventories and skyrocketing foreclosures.

Todays news from NAR: “The national median existing-home price for all housing types was $220,900 in April, down 0.8 percent from April 2006 when the median was $222,600. The median is a typical market price where half of the homes sold for more and half sold for less, but there is a downward skew in the current national comparison because sales have shifted away from many high-cost areas during the last year.”

Existing home sales dropped 2.6 percent to an annualized pace of 5.99 million last month, marking the second straight monthly decline in sales. Sales are now at their lowest ebb since June 2003. NAR says tighter lender standards are to blame.

An interesting study by Fitch Ratings: Link Between Falling U.S. Home Prices & Rising Subprime Defaults.”

“Fitch analyzed the default rates, defined as the sum of 90 day+ delinquency, foreclosure, REO and bankruptcy rates, of loans originated in 2002 through 2006 and the cumulative HPI rate following origination. Fitch conducted its analysis at the Metropolitan Statistical Area (MSA) level, rather than using state or national numbers. By weighting the home prices based on the amount of subprime loans in each MSA, Fitch was able to create a more accurate picture of home price inflation levels in the areas where subprime mortgages are concentrated. ”

“The analysis showed that subprime loans originated in the first quarter-2006 (1Q'06) have experienced only 0.5% of home price inflation after 12 months, but that defaults have jumped to 8.3% of outstanding mortgage balances. 'This contrasts starkly to 2005 full-year originations which experienced average HPI of 17% after 12 months and very low defaults of 1.7%,' said Managing Director Glenn Costello. ”

Calculated Risk has an excellent analysis and graph illustrating the current inventory situation: “Supply is increasing, and will most likely continue to increase through the summer months. And sales are still high (based on percent of owner occupied units) and will probably continue to fall. Right now I'm expecting 'months of supply' to reach 9.5 months by mid-summer.”

I strongly recommend reading Paper Money's analysis on April's Existing Homes Sales Report, proving once again how things aren't so difficult to figure out.

“Sales are, in fact, down in EVERY region with the majority of declines in the double digits.”

“Keep in mind that we are now seeing existing home sales declines on the back of last years fairly dramatic declines further indicating that the housing markets are not bottoming as many had suggested last fall.” See table on bottom of Paper Money's page.

If you're not much into charts and just want to use some of that good ol' common sense (along with a few laughs) then be sure to check out Dr. Housing Bubble's latest: “Real Homes of Genius: Special Edition” After looking at some of those homes, common sense should be screaming to you by now that it doesn't take a “genius” to figure out where home prices are destined.

Don't agree? Think the housing market has reached a bottom?—and is now emerging from an 18-month slump? Look no further—for a quick change in mind—in this article from CNN titled “Big drop in home prices predicted”. Still not convinced?—and even think now might be the right time to buy? OK, then be sure to check out this sitePlenty of deals just seem to keep on popping up.



Anonymous said...

It's better to buy now, look out for rate hikes.

Dimitris said...

Wow. And I was worried the article was too obvious to some about prices coming back down.

Thanks for the comment and good luck on your next purchase.

Anonymous said...

Nice site!, Love the graphic!I agree with post #1, GOOD TIME TO BUY!I am looking into buying an older home in the town of Easton, Ma. Good Stuff

Nozferatu said...
This comment has been removed by the author.
Nozferatu said...

Good time to buy????????????

Better a hike in rates than an overpriced POS....I can't believe anyone would even say it's a good time to buy.

Which RE office do you ANONS work at? Hmmmmmmmmm??

Anonymous said...

Uh - it's most certainly not better to buy now if rate hikes are coming and you have a big fat down payment saved up (like me). The more cash you have, the better an impending rate hike is for you because that will necessarily push prices down. And frankly, if you don't have a large down payment saved up, you have no business buying in the first place - that's why we're in the mess that we are now, all these fools who bought into the delusion that it's a good idea to make such a mammoth financial decision before you have firmly demonstrated your long term solvency.

Anonymous said...

"Uh - it's most certainly not better to buy now if rate hikes are coming and you have a big fat down payment saved up (like me)"
I'm in the same situation. Patience is a virtue.