According to two reports released this week, home prices across most of the country have started to rise from the depths of the housing slump on a month to month basis, potentially the beginnings of a trend toward stabilization in the housing market and the overall economy. Standard & Poor’s/Case-Shiller U.S. National Home Price Index, an index of prices in twenty major cities across the country, had its first quarter to quarter increase in three years. The index also showed an increase from May to June with Dallas and Denver leading the pack with their fourth consecutive monthly gain. Detroit and Las Vegas were the only metropolitan areas in the study to show prices falling from May to June.
An improvement in home prices suggests the U.S. property market may be recovering, said Robert Shiller, a professor of economics at Yale University in New Haven, Connecticut. “We might be seeing a turnaround,” Shiller said in an interview on Bloomberg Radio and Bloomberg Television. “I say ‘might’ because there’s still a pretty weak economy out there.” Shiller is co-creator of the S&P/Case-Shiller home-price index, which fell 15.4 percent in June from a year earlier, the smallest decline since April 2008. On a month-over-month basis, the index rose by the most in four years.
The Standard & Poor’s/Case-Shiller U.S. National Home Price Index rose 1.4 percent from the first quarter to 133, though was still down almost 15 percent from the second quarter of last year. Case-Shiller index is considered to be the “go to” index in terms of gauging the level and direction of home prices. The indexes include a broader mix of properties compared to the index created by the Federal Housing Finance Agency. That index excludes many high-end properties, as well as homes bought with riskier mortgages or all cash.
Case/Schiller measures home price movements relative to the baseline reading of prices in January 2000. The baseline reading is 100 meaning that the current valuation of 133 represents a 33% increase in home prices since the initiation of the index. According to the Case/Schiller Index, prices have reverted back to levels last seen in the first quarter of 2003, down 30% since the peak of the index in the second quarter of 2006 and 15% since June of 2008. Every metro showed annual declines, with fifteen reporting double-digit drops.
A second report which heartened housing watchers was released by the Commerce Department showing that sales of new single-family homes soared 9.6 percent in July, the most in four years, to an annualized rate of 433,000. Because of cutbacks in housing starts, the number of homes on the market dropped last month to the lowest in 16 years as the sales pace accelerated. Home builders, even with the glut of existing homes on the market, must build selectively to maintain any kind of cash flow.
While the two reports continue a string of relatively good reports of late, most industry watchers are saying that it’s too early to say that the housing crisis has run its course. The main points being made by those not sold on a housing recovery are:
* The second quarter is consistently the best one of the year for housing
* Case/Schiller only monitors executed sales 20 metropolitan areas. While sale prices may be a general reflection of prices in an area, vacant and foreclosed homes which are currently unsellable would push prices down dramatically if they could be counted in the survey
* Demand at the low end is being spurred by low interest rates and an $8,000 first time buyer’s tax credit. Both drivers are temporary in nature.
* Real estate has led the economy out of every recession since the 60’s. With the longest economic contraction since the end of World War II having claimed 6.7 million jobs since December 2007 the driver for job creation remains unclear. By just about every indication, especially the unemployment rate’s influence on foreclosures, the economy will have to be led by another industry but there doesn’t appear to be anything with that kind of momentum at this point in time.
Even if the recent run of consistently positive news does signify some stabilization, the recovery will likely be a long struggle due to the record levels of delinquencies, foreclosures, and homes which are underwater. In the “sand states” of California, Arizona, Nevada, and Florida the increasing supply of shadow and actual foreclosures are likely to weigh on prices for several years, giving the appearance that should a recovery be in the offing, it will be uneven with some categories rising while others continue to suffer.
In this environment, where holding periods for real estate are being extended far beyond previous expectations, homeowners struggling with their mortgages need more than just a minimal loan modification. What are needed are substantial changes to the interest rate, payments, and, whenever possible, the amount owed on the balance of the mortgage resulting in mortgage payments which are sustainable for the long term. With lenders still playing hardball in their negotiations with their borrowers, having an attorney experienced in getting optimal results negotiate on your behalf is the best way to get a home loan modification that works for your personal situation. The Feldman Law Center has negotiated hundreds of positive outcomes for their clients since their founding in May of 2008. Call them today at (800) 527 8497.