For May, the Case-Shiller Index showed home values up in 15 of its 20 tracked U.S. markets. It’s the first time in nearly 3 years that the index showed such strength and a signal that home prices may be turning higher for good.
According to a Case-Shiller Index spokesperson, “this could be a signal that home price declines are finally stabilizing.”
However, just because the Case-Shiller Index indicates home values are stabilizing, doesn’t necessarily make it true. Real estate is a local phenomenon and the Case-Shiller Index tracks just 20 U.S. cities.
Residents of every other town are unaccounted for.
Additionally, even within the 20 tracked cities, there are distinct neighborhoods and pockets that are under-performing the general market — just as there are those that are over-performing. The Case-Shiller Index can’t get that granular.
Despite its imperfections, the Case-Shiller Index remains a helpful, broader measurement of U.S. real estate. Economists believe that housing led the U.S. into the recession and they believe housing will lead us out, too.
If that’s true, May’s figures are the next step in the right direction.
Once again, the housing market is showing that its worst days may be over.
According to the Census Bureau, the number of new homes sold in June leapt by 11 percent from the month prior. It stands as the biggest one-month jump in 8 years.
A “new home sale” is when a home in any stage of construction — not yet started, under construction, or already completed — goes under contract, often with a builder. It’s the opposite of an “existing home sale”.
In addition to surging sales, the monthly supply of new homes fell to its lowest level in 11 years.
Because home values are based on the relative supply and demand for a particular home in a particular area, anytime that demand for homes grows faster than supply, we would expect prices to rise.
Indeed, that’s what we’ve been seeing. The combination of low interest rates, seller-paid incentives and a first-time home buyer tax credit is bringing buyers into the market faster than new supply can come online. It’s one reason why home prices have stopped falling across many parts of the country.
It’s also why home buyers may find it tougher to get “a good deal” in real estate later this year and into 2010. If demand stays high and supplies fall further, sellers should regain the upper-hand in contract negotiations.
The national home supply is falling, down to its lowest levels since December 2008.
In June, there was 9.4 months of supply, down from a year-ago level of 11.0 months. It’s one more sign that the housing market may be mending itself.
Housing supply is an important metric because home values across every U.S. market are rooted in Supply and Demand. When the supply of available homes outpaces buyer demand, home values tend to fall. And, by contrast, when homes are relatively scarce, values tend to rise.
We’re still a long way from historical averages, but dwindling home inventory may be one reason why the national median sale price rose by $7,000 last month.
A reduction in inventory may also explain why two other popular home value metrics — the government’s Home Price Index and the private-sector’s Case-Shiller Index — are each showing signs of a rebound, too.
However, before we get too excited, it’s important to remember that home sales of late have been spurred by low mortgage rates and by the First-Time Home Buyer Tax Credit. A real estate trade group says first-timers represent 29 percent of the market, for example.
But so long as rates remain low and buyer stimulus is in place, we can expect that the recent trends in real estate will continue. Inventory should continue to drop and prices should start to rise.
Therefore, if you’re planning to buy a home in the next 12 months, buying sooner rather than later may be a smart way to save on your next home.
Home values around the country appear to be leveling.
The Federal Housing Finance Agency’s latest Home Price Index report shows values up by nearly 1 percent in May versus the month prior.
Since peaking in April 2007, values remain off by 11 percent nationwide.
The FHFA Home Price Index is an interesting metric. Different from the Case-Shiller Index which collects data from just 20 U.S. markets, the Home Price Index reflects every U.S. home that backs a mortgage sold to Fannie Mae and Freddie Mac.
In this sense, the FHFA Home Price Index is more “national” than the Case-Shiller Index but the HPI has its flaws, too.
The House Price Index specifically excludes from its measurements the sales price on any home purchase with any of following traits:
- Is new home construction
- Is a multi-unit property
- Is financed by an entity other than Fannie Mae or Freddie Mac
Because of these exclusions, some analysts say the report is incomplete. The same could be said of every method of home valuation, however.
Therefore, what’s most important to today’s home buyers and sellers is that each of the “popular” home valuation reports shows similar patterns. Home prices appear to have stopped falling and may be even starting to recover.
It won’t be for a few years that we’ll be able to look back and point to the exact month that real estate bottomed. Nevertheless, considering how the data has presented as of late, it’s reasonable to think that we’ve already hit it. Certainly, that’s what the Home Price Index suggests.
For a region-by-region breakdown of the Home Price Index, visit the FHFA website.
Mortgage markets rallied Tuesday while Fed Chairman Ben Bernanke gave his semi-annual testimony to Congress.
By the time the day was over, some conforming mortgage rates were down by as much as 0.250 percent.
One of the leading causes for the market rally was Chairman Bernanke revealing an “exit strategy” from its massive market stimulus.
Until Tuesday, the Fed hadn’t gone into much depth about means and methods by which it would unwind its interventions. In addition to penning a widely-read Op-Ed piece in the Wall Street Journal Tuesday, Bernanke testified to Congress that the Federal Reserve has a viable “exit strategy”.
Wall Street was pleased to hear it.
The specter of long-term inflation has spooked the mortgage markets off-and-on since the start of the year. It’s one of the reasons why mortgage rates have been so jumpy, and why they crossed 6 percent last month. Inflation is terrible for mortgage markets.
So, with the fear of inflation subsiding — at least temporarily — mortgage rates sunk Tuesday.
With any bit of luck, momentum will carry rates lower today and through the rest of the week. But, don’t get greedy. Mortgage markets are notoriously fickle and one “bad” statement from the Fed Chairman could cause rates to rise right back up.
Bernanke’s complete Tuesday testimony can read online at the Federal Reserve website.
Housing Starts soared in June, thumping analyst expectations for the second straight month.
A “housing start” is a new home on which construction has started. Last month’s jump in single-family starts is the largest one-month jump since 2004.
To Wall Street, June’s figures are the latest signal that the country’s housing markets may be on the mend.
For home sellers, however, the news may not be so rosy. With more homes expected to come on the market, price competition among sellers could intensify and — all things equal — that would push sales prices lower.
So far in 2009, that hasn’t happened.
As home supply has grown, it’s been met by off-setting buyer demand. Spurred by low mortgage rates and an $8,000 first-time homebuyer tax credit, Americans appear to find today’s home buying conditions somewhat ideal.
As a result, purchase activity has been strong and first-time home buyers now account for close to 30 percent of existing home sales.
Rising Housing Starts can be a double-edged sword. It shows strength that builders are more optimistic about the economy, but too much optimism can lead to a glut of unsold homes and that could reverse the recovery’s momentum.
For the fourth consecutive month, the country’s foreclosure activity was dominated by a small number of states.
As reported by RealtyTrac.com, more than 50 percent of the country’s foreclosure-related actions in June concentrated in just 3 states:
The states rounding out the Top 10 include Arizona, Georgia, Michigan, Texas, Ohio, Illinois and Colorado.
Meanwhile, June’s reported foreclosure figures are consistent with the data from earlier this year, suggesting that the foreclosure remedy plans put forth by the government and by lenders can barely keep pace with the national default rate.
Foreclosure-related actions nationwide are up 5 percent from May.
The silver lining in data this negative is that foreclosures are creating tremendous buying opportunities for the right buyers. Because foreclosed homes tend to sell at a discount versus non-foreclosed homes and because mortgage rates are low, home sales are showing strength in a multitude of markets because of ample supply at relatively cheap prices.
Distressed homes accounted for one-third of all existing home sales in May.
Search the complete June 2009 foreclosure report for yourself, including foreclosure heat maps and other trends on the RealtyTrac website.