Is housing market ready to awake?


Is housing “awakening” this spring?

In his monthly economic summary — for March, dubbed “The Awakening” — Frank Nothaft, chief economist at government-backed mortgage buyer Freddie Mac, saw a housing market stirring, noting that “Even the housing market is showing some signs of shaking off the depression-like conditions that have plagued it for much of the past few years. As if awakening from hibernation, housing starts and home sales moved to higher (albeit still very low) levels of activity.”

Article Tab: Frank Nothaft, chief economist at government-backed mortgage buyer Freddie Mac sees a spring awakening in housing.
Frank Nothaft, chief economist at government-backed mortgage buyer Freddie Mac sees a spring awakening in housing.

His evidence?

•Housing starts up 19 percent from the pace over the prior 12 months.

•National Association of Home Builders/Wells Fargo builders’ overall confidence index at the highest level since June 2007, though still low.

•At current pace, apartment construction in 2012 would be highest since 2005.

•Housing starts below net household formation.

•Hints that home values may be “stabilizing in more markets around the nation.”

•National Association of Realtors February confidence index at highest level since survey began in 2008.

He concludes: “A variety of encouraging indicators suggest that the housing market may be feeling a nascent awakening ‹ much like the garden flora reemerging from their winter dormancy ‹ and more neighborhoods may see stabilization in overall demand and housing values this spring.”

You do have to look pretty hard for signs of progress.

Take the FNC Residential Price Index — which excludes sales of distressed properties for its math. For January, it showed its sixth consecutive month-to-month drop.

FNC noted this drop comes “in spite of continued economic expansion and an improving job market in recent months. The latest persistent downtrends are driven primarily by conditions in the distressed market, which remains overwhelmed by the disposal of foreclosed and (bank-owned) REO properties.”

FNC Indexes showed:

•Overall, single-family home prices fell 0.6 percent in January from the previous month.

•Values nationwide back at January 2003 levels.

•Prices down 3.6 percent from a year ago. FNC writes: “Trends indicate that the annual rate of price declines has stabilized in recent months.”

•Among 30 individual markets tracked by FNC, 10 markets were up and 20 were down in January from December.

•Year-to-year, best performers were Denver and San Antonio — up, 2.3 percent and 1.2 percent respectively. Las Vegas (down 9.5 percent); Atlanta (down 9.3 percent) and Sacramento (down 9 percent) rank as the worst.

Worst drop from the peak? Las Vegas (down 62.7 percent), Phoenix (59.7 percent), Riverside (59.4 percent), Sacramento (58.9 percent), Orlando (57.2 percent), and Miami (54.9 percent).

Or eyeball the more widely watched The Standard & Poor¹s/Case-Shiller home price indexes.

Nationally, prices by S&P’s 20-city math fell 0.84 percent December-to-January and were down 3.78 percent in year ended in January. Current pricing equals values seen in December 2002.

S&P’s David Blitzer: “Despite some positive economic signs, home prices continued to drop. Eight cities -­ Atlanta, Chicago, Cleveland, Las Vegas, New York, Portland, Seattle and Tampa -­ made new lows. Detroit and Phoenix, two cities that have suffered massive price declines, plus Denver, saw increasing prices versus January 2011.”

IHS Global’s analysis of the S&P report suggests Freddie Mac’s economist may be too rosy.

“The Case-Shiller indices tell 20 different stories. Encapsulated into one, they tell us that prices collapsed between 2007 and 2009, have been mostly inching down ever since, and that signs of a turnaround are nowhere in sight. Not one of the cities is showing a turnaround in the data ‹ even without factoring in inflation,” IHS wrote.

Now IHS offered a caveat — a notion that FNC is trying to figure out with its indexes. IHS wrote: “One critical piece of information that is hard to sort through in the data is whether the indices are declining because demand is weak or because the share of distressed sales is high.”

But IHS concluded: “The background numbers are discouraging: According to the Mortgage Bankers Association, 12 percent of homeowners with mortgages (i.e., more than 6 million homeowners) were either delinquent on their payments or in foreclosure at the end of the fourth quarter. According to CoreLogic, about 22 percent of residential properties with mortgages are currently underwater. Add to this the currently high unemployment and underemployment rates, and tight credit conditions, one gets a recipe for further price declines. Our view is that foreclosures, excess supply, and weak demand will drive home prices as measured by the Case-Shiller indices down at least another 5 percent.”

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