Home prices hit new post-bubble lows nationally in February, reaching their lowest levels since 2002, according to the most recent S&P/Case-Shiller home price report.
Housing “may not recover in our lifetime,” said Robert Shiller, a professor of economics at Yale University and co-creator of the Standard & Poor’s/Case-Shiller Index.
Prices have continued falling in most major metropolitan areas because foreclosures and distressed properties continue to represent a high percentage of properties. (Distressed properties are those with delinquent payments but not yet in foreclosure.)
Price Suppression
The foreclosures and distressed properties are holding down prices of all properties despite government policies that have mortgage interest rates at or near record lows. Historically, as interest rates have gone down, house prices have gone up because borrowing becomes less expensive, enabling buyers to bid up house prices.
Similarly, various federal programs designed to help prop up the real estate market have done little if anything to stem the tide of eroding house prices in these markets.
“This is a slow-moving market. Rebounding prices is the lagging indicator,” said Greg Rand, CEO of OwnAmerica and host of Where to Invest Now on the FOX Business Network. “The early indicators are signs of increased demand that will, in time, stabilize prices. That phase of the market could leave us flat for a couple of years. We still have over a million distressed properties to get through, and it is unrealistic to expect anything but continued decline or, at best, stabilization until that inventory is cleared out.”
Rand says there are some positive signs, however, citing a National Association of Realtors Survey.
More Investor Sales
“The best indicator of a coming recovery is the fact that investor sales increased by 65 percent in 2011, representing 27 percent of all home sales. Investors are early actors. They see an opportunity. Home buyers will only follow when unemployment comes down,” he said.
A housing recovery “does not lead an economic recovery,” he noted. “They arrive in tandem. Neither can exist without the other.”
Another factor is that though interest rates are at or near their record lows, consumers have largely run out of borrowing capacity, according to the Mortgage Bankers Association of America. The industry trade group had pointed to a combination of a weak economy, high unemployment, and regulatory confusion for the drop from a projected $1.2 trillion in loan originations this year to a forecast for $900 million in 2012, the lowest figure in more than 10 years.
Out of Equity
The MBA projects refinance originations to drop from $783 billion last year to $495 billion in 2012 because fewer borrowers are eligible to refinance. Borrowers have largely used up their equity, and with prices continuing to be soft or falling further there is no new equity to be had.
Lack of equity also keeps borrowers from buying “move up” properties as they have done in the past.
“Any active buyers are focused on the low end of the market. They’re focused on the lowest-priced properties,” said Rick Sharga, executive vice president of Mortgage Holdings in, Santa Ana, Calif.
Homeowners who can no longer afford payments due to economic conditions, and banks that own foreclosed homes, are willing to deal to make sales, so potential buyers have the upper hand in negotiations, he said.
The supply of higher-priced houses is thin because owners of those properties do not want to sell into a depressed market. Most sellers of high-priced houses are putting them on the market only because they are forced to by economic circumstances, Sharga says.
