No, the bottom is not here yet.
(Credit: Getty Images North America via @daylife)
Well, 2012 may or may not be the end of the world as we know it, but one thing is perhaps certain: it’s the end of the ghastly price hemorrhages home owners have suffered since the real estate market crashed in 2007. Nationally, home prices have dropped about 35% since the housing bubble burst – in the hardest hits areas, 55% or more. Yet new reports from several real estate research firms signify that home prices are finally stabilizing. The data reinforces a notion already asserted by many an economist, real estate agent and Wall Street investor: that 2012 is the year of the bottom.
The National Association of Realtors reports that in the first quarter of 2012, the median existing single-family home price, or final sales price, rose in 74 of the 146 metro areas that the association tracks. In the fourth quarter of 2011, only 29 metro areas had showed price gains. In other words 51% of the major cities across the U.S. have welcomed price gains, most notably in areas where the energy industry helps fuel the economy (Bismarck, N.D. and Oklahoma City, Okla.) and in snow bird retirement haven Florida (Tampa, Cape Coral, Palm Bay, Sarasota). Areas still plagued by falling prices are Atlanta, Ga., Mobile, Ala., Reno, Nev., Seattle, Wash., and Kingston, N.Y.
“Given the steadily dwindling supply of inventory and notably higher listing prices that are being negotiated today, prices are expected to show further improvements in the near future.” Lawrence Yun, chief economist of NAR, noted in a statement.
Housing inventory levels have been shrinking across the U.S., leading to bidding wars and modest upward pressure on prices in some areas. At the end of the first quarter, 2.4 million existing homes were up for grabs, nearly 22% less than last year. Completed home sales jumped 4.7% in the first quarter of 2012 and pending homes sales are currently up 12.8% since March 2011. As inventory levels continue to tighten, a recovery, however nascent, can begin to materialize, especially if lenders can offload distressed properties to investors.
The latest Fiserv Case-Shiller Indexes also report signs of price stabilization. David Stiff, chief economist at Fiserv, notes that non-price metrics like home sales volume, increased spending on home improvement and more multi-family construction indicate that the housing sector has bottomed. “We expect that home prices, which generally lag changes in sales activity by nine to12 months, will stabilize by the end of this summer and then rise at an annualized rate of 3.9 % over the next five years,” asserts Stiff in a statement.
Fiserv says the spring and summer selling season will be fueled predominantly by investors this year. NAR estimates that roughly one-third of all purchases are already investor-related. As rents continue to rise, first-time buyers and trade-up buyers will eventually follow, lured by the record affordability levels of home ownership, Fiserv predicts.
A third real estate research firm, CoreLogic, released its own data this week. Including distressed sales, U.S. home prices ticked down 0.6% from March 20122 to March 2012. However, from February to March they rose 0.6% in the first month-over-month increase since July.
“This spring the housing market is responding to an improving balance between real estate supply and demand which is causing stabilization in house prices,” notes Mark Fleming, chief economist for CoreLogic, in the report. “Although this has been the case in each of the last two years, the difference this year is that stabilization is occurring without the support of tax credits and in spite of a declining share of REO sales.”
Fleming points to Washington, D.C., New York City and Phoenix, Ariz. as examples of markets where recovery is already taking hold.
Despite the hopeful prognoses from these reports, it’s also crucial to note that housing is and should be viewed on a local level rather than nationally. As I have noted before, different markets will bottom and recover at different paces depending on a variety of factors this year, including the availability of local jobs and how fast foreclosures can be processed and reabsorbed into local markets.