Time to pop the confetti and buy a few Miami condos? Not quite.
The truth is, a combination of factors is set to push national home prices down an additional 10% or so before a hard bottom is found. And if Europe's debt mess and fiscal bickering in Washington result in another recession, the drop could be double that.
The problem with much of the recent enthusiasm is that it's been based on rising home-sales data, which...makes the gains seem dramatic. But at 4.6 million units annually, the sales rate is pitiful compared with the 7.3 million sales peak hit in 2005.
Because of the "robo-signing" foreclosure scandal, the big banks have dramatically slowed the rate at which they push delinquent homeowners through the foreclosure process. Until they iron out the wrinkles, they would rather let deadbeats get a free ride than compound what was already a public-relations nightmare.
the number of foreclosure filings has dropped from the 2008-2010 running rate of around 100,000 per month to closer to 60,000 per month now. Because of this, the time between a borrower going 60 days delinquent on a mortgage and liquidation of the property has increased to nearly three years -- up from just five months in 2004...all those postponed foreclosure filings are about to move forward -- unleashing a wave of distressed properties into a weak market. Gluskin Sheff chief economist David Rosenberg notes that when this complete "shadow inventory" of homes is properly accounted for, that number for months of supply on sale in the housing market will jump from 6.2 into the double digits.
there are still around 3 million excess residential housing units on the market. That means that even if builders stop all activity and no new homes come to market, it would take nearly eight months to clear them out.
No wonder prices are weakening again. According to Standard & Poor's Case-Shiller Home Price Index, prices have fallen eight months in a row and have reached new post-bubble lows, with prices returning to levels not seen since late 2002. In other words, although the recession officially ended in 2009, the housing market continues to weaken. Hardly a reason for optimism.
Reality is setting in, however. Economists up and down Wall Street are marking down their growth forecasts as data on things like durable goods and factory activity disappoint. And now, the ITB exchange-traded fund is in the midst of a new downtrend, nearly 8% off its high. There's good reason for investors to head for the exits.
Michelle Meyer at Bank of America Merrill Lynch is looking for an additional 8% drop in home prices through the end of the first quarter next year, assuming the economy remains buoyant. Her downside scenario, which would see prices drop an additional 20%, is based on inventory jumping to nearly 12 months' of supply by 2013. According to Rosenberg's calculations, we may already be close to that level.
An additional 20% decline would put the cumulative, post-bubble home price drop at 46% and return home prices to levels last seen in 2000. And the risk is that this weakness becomes self-sustaining, since additional home price weakness would pressure the banks to further tighten mortgage lending, pressure household spending via reduced wealth, and pressure the government via increased budget deficits as economic activity slowed.
So not only is the housing market far from "safe" by any traditional definition of the word, it's very likely that a double-dip in home prices could slam the brakes on an already feeble recovery.
the current excitement amounts to little more than another false dawn. Back in January 2010, Wall Street was looking for housing starts to average 1 million in 2011. But the actual pace was about 600,000. This year, initial forecasts were for 900,000 versus 700,000 now. Eventually, perception will catch up to reality as widespread investor pessimism sets the stage for an upside surprise in two years' time.
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