Spring starts the traditional home-selling season. But serious weakness in real estate has taken the bloom off the market.
April 13, 2011, 10:28 a.m. EDT
Home for sale this spring? Your outlook is bleak
Impediments to recovery continue to dog the housing market
By Amy Hoak, MarketWatch
CHICAGO (MarketWatch) — It’s spring, that time of year when many prospective home buyers begin the hunt for their next residence. But with home-price declines, more foreclosures to come and slow improvements in the employment market, some say it’s likely this year’s buying and selling season will be another bust.
“We’re all hoping that this spring and summer will bring about a housing rally, but there are too many impediments for that to happen,” said Anthony Sanders, a professor of finance and real estate at George Mason University.
Some are using the dreaded phrase “double dip” to describe trends in the housing market today — particularly regarding home prices that began to show signs of improvement, but then petered out and began falling again, deflating hopes that the market had started to recover.
That may be especially true in the West, where, according to Clear Capital, home prices in the region dropped 4.3% in the first quarter, compared with the fourth quarter, hitting “double-dip territory.” Prices seem to be flattening elsewhere in the country, the firm said. Clear Capital is a data provider of real-estate asset valuation and risk assessment.
Nationally, home prices were down an average 3.1% in January, compared with the year before, according to the Case-Shiller home-price index, which takes into account prices from 20 major cities across the country. Read more on Case-Shiller report.
By the National Association of Realtors’ measure, the national median price on an existing home fell 5.2% in February, compared with a year ago, to $156,000 — the lowest the national median price has been in nine years. Read more on National Association of Realtors report.
Prices could fall 10% to 15% on a national basis this year, said Jason Kopcak, head of whole loans at Cantor Fitzgerald, a financial services firm. Estimates from CoreLogic, a provider of consumer, financial and property information, figure prices will drop another 5% this year before they begin to bottom out into next year.
But if there is, in fact, a double dip materializing, perhaps a better way to describe it is the continuation of a long drop, stretched out due to government intervention that incentivized home buying, said Sam Khater, senior economist of mortgage analytics and economics at CoreLogic. Remember, last spring many buyers still qualified for a home-buyer tax credit — a benefit that many believed propped up home prices.
“To state it is a ‘double dip’ would mean that we recovered in an organic and sustained way,” he said. “It will be interesting to see how sales rebound this spring, because this will be the first home buying season in close to two years where there haven’t been the demand-side artificial stimuli,” Khater said, acknowledging the remaining way the government is continuing to help the housing market — keeping mortgage rates low.
More lookers, few takers
Even if there aren’t swelling ranks of buyers these days, more people have been searching for homes in recent months, according to Realtor.com data. Nationally, home searches were up 8.5% in February on the site, compared with the year before. Searches were up 9.9% year over year in January, according to the site.
Still, many would-be buyers remain stuck.
According to NAR, sales of existing homes were down 2.8% in February, compared with the same month last year. And sales of new homes were down 28% in February compared with the year before — to the lowest level of sales on record, according to the Commerce Department. Read more on new home sales.
Many would-be buyers face challenges in qualifying for a mortgage, faced with larger down payment and credit score requirements to get the best loan terms. Home-price drops may continue to cause otherwise eligible buyers to step on the brakes.
“There’s not a huge demand out there,” Kopcak said. “Generally speaking, there is a pessimistic view going forward for this year.”
Below are three other impediments that Sanders alluded to:
• More foreclosure inventory to come. Foreclosure inventory remains high, and the so-called “shadow inventory” could keep it that way for a while. In January, shadow inventory reached 1.8 million units — or a nine-month’s supply. Shadow inventory includes distressed properties that aren’t on multiple listing services because they are seriously delinquent, in foreclosure or have been taken back by the banks, according to CoreLogic. High inventory in the market pushes home prices lower.
• An employment market that is improving slowly. But there’s more to it than that: There needs to not only be job growth but also wage growth for the housing market to recover, Khater said.
• General uncertainty about government decisions that would affect cost of homeownership. In particular, homeowners and potential homeowners are paying attention to whether the mortgage interest deduction will remain on the books or will be limited, Sanders said. There are other proposed lending rules that, if enacted, could also raise the cost of borrowing.
Should you buy?
Before you answer the question above, ask yourself another question: How long would you plan on owning a home if you bought one today?
“If they can wait 10 years plus [before selling], they can make a great return,” Kopcak said, adding that the current market can represent a great opportunity for those who are ready and willing to buy and hold for a while.
After all, prices are down nearly a third from their peak and mortgage rates remain low, Khater said.
When making your calculation on whether to buy, also keep in mind that home price trends are regional. For example, while permanent job loss in Midwestern cities is haunting some markets, in cities including Boston, New York and Washington, D.C., prices are stabilizing, Kopcak said.
Prices in Washington, D.C., for instance, were up 3.6% year over year in January, according to Case-Shiller.
Plus, the preponderance of cash buyers in the market lately seem to suggest that a bottom is nearing; they’re taking advantage of low prices and speculating that the market will improve with their own funds.
“Usually, investors have deeper pockets than the average person. If they’re seeing opportunities, there are probably some other opportunities for homeowners as well,” Khater said.
But maybe none of that is a comfort to the average Joe.
Many Americans still view buying a home as risky, according to the most recent National Housing Survey from Fannie Mae. According to the survey, 64% of Americans believed that buying a home was a safe investment late last year, down from 70% who said the same at the beginning of 2010. For comparison, 83% said buying a home was a safe investment back in December 2003.
“Risk is always a bad thing for the housing market,” Sanders said, adding that people buy a home when they’re comfortable about their finances as well as confident about the future.
For many Americans, they’re just not there yet.
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