The U.S. Housing Market - Where Does It Stand Now?
Data from the U.S. housing market has been on a roller coaster course for several months now, making it difficult to tell whether things are getting better or worse. A brief look at all the parts and pieces gives us a larger picture of the market's health today.
Both new and existing home sales in May fell over April. First-time homebuyers made fewer purchases in May and distressed homes sales were a smaller portion of the total in April. The decline can be traced to several things like terrible storms across the Midwest and rising gas prices. A general uncertainty about the job market is also creating headwinds. Lawrence Yun, chief economist for the National Association of Realtors, tied most of the decline in existing-homes to tightened lending standards:
“Even with recent economic softness, this is a disappointing performance with home sales being held back by overly restrictive loan underwriting standards,” he said. “There’s been a pendulum swing from very loose standards which led to the housing boom to unnecessarily restrictive practices as an overreaction to the housing correction – this overreaction is clearly holding back the recovery.”
While sales have been up and down, home prices on a monthly basis have actually been trending upward for a few months, although they have not yet caught up with year-ago levels. The S&P Case-Shiller price index comprising the top 20 U.S. cities moved up 0.7 percent in April over March, but it fell 4 percent from the previous year. Existing homes prices have increased for the past three months, but are still down in a year-over-year comparison.
Housing and Urban Development Secretary Shaun Donovan is confident that home prices have basically already bottomed out. In an interview with CNN he said, “It’s very unlikely that we will see a significant further decline. The real question is when will we start to see sustainable increases. Some think it will be as early as the end of this summer or this fall.”
And in a recent press conference, Federal Reserve Chairman Ben Bernanke said that there may be some good news in the home price front:
“It’s interesting now that although house prices overall are declining, all of that is concentrated in distressed properties; that is, houses which are not being sold on a distressed basis have much more stable prices than those which are being sold on a distressed basis, and that suggests that if we can reduce the current number... that would do a lot [for] stabilizing the market and helping give people confidence that they can buy and not be buying into a falling market.”
And there may be fewer distressed properties on the market in the coming months, as foreclosure starts fell in May by 7 percent from April and down 39 percent from the previous year, according to RealtyTrac. However, that may not reflect the true landscape says James Saccacio, RealtyTrac's CEO.
"Foreclosure processing delays continue to mask the true face of the foreclosure situation," he said. "Lenders are somewhat unevenly pushing batches of bad loans through foreclosure as they overhaul their paperwork and documentation procedures." He also cited an increase in unsold bank-owned properties in April and May as a sign that demand is weakening for these foreclosures and the current inventory could stay on the market for a while.
Overall, the U.S. housing market seems to be making little progress. Home sales are slowly climbing back up are home prices, and foreclosures are temporarily being held at bay. Until the problems of high unemployment and underwater borrowers are resolved, the housing market recovery may continue to be a slow process.