This adds evidence to the case that U.S. home prices may have hit bottom earlier this year. Even though prices will soften in the autumn, Mark Fleming, chief economist at CoreLogic, said “we have a much better supply and demand dynamic” than in previous years.
So when people say they believe home prices haven’t reached a bottom—that this year’s seasonal gains will be wiped away by January or February of next year—here’s the relevant question: Will home prices fall by 9.6% in the next six months?
Anything, of course, is possible. Home prices fell in the winter—what Mr. Fleming calls the “offseason”—in each of the last three years to record a new low. But they have not fallen by 9.6% in any six-month span since March 2009, which was when the U.S. economy was still in recession.
That’s the good news.
Here’s the bad news: While the year-over-year comparisons look good right now, the economy—and workers’ wages—aren’t growing fast enough to justify this kind of increase on a sustained basis.
Instead, the snapback in home prices in the last six months is more an indication of how prices “over-shot” over the past year. Investors, sensing deals, began buying up homes. The most likely scenario for home prices over the next year is that they may rise, but not at the breakneck pace of the past few months.
There are other serious headwinds. It’s still hard to get a mortgage, and many households have too much debt. Millions of homeowners owe more than their homes are worth. Millions more have enough equity to sell their house but not enough to make a down payment on their next house and pay a real-estate broker’s commission.
As I’ve said many times before, the strong rise in home prices this year owes as much to sharp declines in inventory as it does to demand-side improvement. Banks have been much slower to take back and list foreclosed properties, easing pressure on home prices but leaving a bloated “shadow inventory” of potential foreclosures.
These homes will weigh on markets for years, though there’s less evidence that they will be dumped on the market all at once. While the shadow inventory may not lead to a big drop in prices that some have feared, it will probably keep a lid on future home-price gains.
Finally, lower mortgage rates have dramatically increased the purchasing power of today’s home buyers when compared to one year ago. Some real-estate executives are nervous that demand isn’t stronger given today’s low mortgage rates, and they’re worried about what will happen if rates rise.
The bottom line: Don’t be surprised if the all-time low in home prices is in the rearview mirror. But this doesn’t mean a full-on recovery is here, and there’s little evidence that the current pace of improvement can continue. For now, home prices appear to be bumping along a bottom.
So taking a look at the local market.. Low inventory and high demand are pushing the Monterey Peninsula real estate markets into multiple offers leaving the losing bidders frustrated.
Inventory, or lack thereof, is at ten year lows. Prices have yet to respond to the situation. We expect prices to start showing some strength in the coming months.
The high end of the market, however that’s defined in a particular city, is solid.
The low end of the market is being driven by investors with cash and is seeing the most activity. The middle market, the move-up market is soft because the entry-level homeowners are still underwater.
So what’s next?
That’s hard to tell because inventory is so low and is putting constraints on the market breaking out. We don’t see that changing much in the near future for several reasons.
First, there is not a lot of new home building going on, which is necessary to relieve the pressure.
Second, many existing homeowners aren’t going anywhere. Many of them are still underwater and can’t sell without taking a big loss.
Lastly, forget about shadow inventory around here. As of March, the banks owned 816 properties in the county. That number includes homes and condos. There are currently 697 homes and condos actively listed for sale. Even if the banks put all of their inventory on the market, it’s less than 4 weeks’ worth!
The median price for single-family, Monterey County re-sale homes rose 8% last month compared to the year before. The median price has been up, year-over-year, in Monterey County for the past 6 months in a row. Home sales for Monterey County were up 0.8% year-over-year. Pending home sales were up 30% year-over-year. Usually, this bodes well for the future. Unfortunately, in this multiple offer environment, many of these pending sales are not closing because the properties don’t appraise, the buyers can’t qualify for a loan, or they get cold feet.
This can be a tough market for buyers. It’s important to be calm and realistic. If you don’t know what to do or where to begin, give me a call and let’s discuss your situation and your options.
© Patty Ross, KRXA Radio Show #234 October 5, 2012
