Miami Real Estate Blog

Although home prices continued to stabilize in November, real estate experts believe we have another 5 or 10 percent of declines in store before values finally hit bottom. Home prices in 20 major cities declined 5.3 percent in November 2009 from a year earlier, a significant improvement over the 13.3 annual drop posted in July, according to the most recent S&P/Case-Shiller home price report. The figures, released Tuesday, represent the third month in a row of single-digit declines following 20 consecutive months of double-digit drops. But a number of factors--including the effects of a federal tax credit, still-elevated home inventories, and the prospect of higher mortgage rates--threaten to drag home prices lower from here. "On balance, while these data do show that home prices are far more stable than they were a year ago, there is no clear sign of a sustained, broad-based recovery," David Blitzer, the chairman of the index committee at Standard & Poor's, said in a statement.

After the historic housing crash dragged real estate values down nearly 33 percent from the second quarter of 2006 through April of 2009, prices in 20 major U.S. cities have stabilized since. The improvement is rooted in several factors. First, lower prices have made home buying more affordable to many Americans who were priced out of the market in the boom years. Second, a Federal Reserve asset-purchase program has pushed mortgage rates down to near historic lows. Rates on 30-year, fixed mortgages hit 4.88 in November of 2009. Meanwhile, Uncle Sam's $8,000 first-time home buyer tax credit has helped prod would-be buyers off the sidelines.

But a handful of market forces may work to bring prices lower from here. First, inventory levels remain elevated, says Mike Larson of Weiss Research. For example, the National Association of Realtors reported Monday that the monthly supply of unsold existing homes increased to 7.2 in December from 6.5 in November. While that's down sharply from the 9.3 months recorded a year earlier, it remains above the 6-month threshold that's more consistent with a balanced market. "It's a lot less bad than it was a year ago, but it is still not pretty," Larson said.

And more inventory is on the way. Even if home sales pick up, the market will have to chew through additional properties that will arrive via foreclosure. "We see a big backlog of distressed properties that could come on the market in the next several quarters," said Celia Chen of Moody's Economy.com. "[Additional distressed sales] would of course cause home prices to fall again." Moody's Economy.com expects nearly 2 million foreclosure sales to take place this year.

At the same time, the Fed program that has been instrumental in driving down mortgage rates is slated to expire at the end of the first quarter. Although the Fed could always resurrect the program if mortgage rates get too high, most analysts expect rates to climb from the rock-bottom levels consumers have enjoyed over the past year. Higher rates could siphon off housing demand and create downward pressure on home prices.

Finally, the November Case-Shiller report "probably reflects residual effects of the homebuyer tax credit, which lifted prices in 2009," economists at Goldman Sachs said in a report. Home buying activity increased during November as consumers scrambled to get their transactions completed by the tax credit's original, November 30th deadline. (The program was later extended and expanded to include even current home owners who complete a sale by the end of June.)

But the record 17 percent monthly drop in existing home sales recorded in December suggests prices may face renewed downward pressure in the wake of the tax-credit induced jump. "Demand has tapered off since the first tax credit expired, and the second tax credit, up to now, is having minimal effects," Patrick Newport, an economist for IHS Global Insight, said in a report. "So, despite the recent positive reports on housing prices, we believe that prices have further to fall--about another 5%."

Chen, of Moody's Economy.com, suggests prices will drop even further. She projects a decline of 11 percent from current levels before prices hit bottom in the third quarter of 2010.

By Luke Mullins , On Tuesday January 26, 2010

Existing home sales plunged in December, falling nearly 17 percent from November in their largest month-over-month drop since record-keeping began. Meanwhile, December's inventory represented a 7.2-month supply of unsold homes, notably higher than the 6.5-month supply recorded in November, the National Association of Realtors reported Monday. Although the monthly decline was larger than expected, the figures are much less jarring when compared with December 2008. Existing home sales remain 15 percent higher than a year earlier, while raw unsold inventory fell 11 percent from December 2008 to its lowest level since March 2006.

Although the monthly drop-off was steep, it had been expected for some time. Buyers scrambled to close transactions by November to qualify for the $8,000 first-time home buyers' tax credit, which was originally set to expire at the end of November. The credit--which was later extended through June--worked to juice home sales figures in November at the expense of December. "The collapse in sales simply reflects the bringing forward of transactions to beat the originally planned expiration of the first-time buyer tax credit," Ian Shepherdson, chief U.S. economist at High Frequency Economics, said in a report. Here's a look at what the December existing home sales report means for homeowners, home sellers, and home buyers:

[See Getting a Mortgage in 2010: 10 Things to Know.]

For homeowners: Property owners who have watched home values at the national level drop roughly 30 percent from their 2006 peaks will see some optimistic-looking data in the report. First, the national median existing home price increased 1.5 percent, to $178,000, from a year earlier. That's the first time median home prices have posted an annual gain since August 2007. Home values began stabilizing in the back half of 2009, thanks to increasing demand linked to cheap mortgage rates, more affordable prices, and Uncle Sam's tax credit. However, the increase in median home prices is also tied the tax credit's original expiration, which resulted in a larger percentage of sales to higher-end buyers in December, said Patrick Newport, an economist with IHS Global Insight, in a report. "Going forward, prices are likely to fall from December's level because of rising foreclosures," Newport said.

How much further will home prices fall? Mark Zandi, chief economist at Moody's Economy.com, argues that home prices have another 10 percent or so to fall before they hit bottom in the third quarter of 2010.

[Also see Expanded First-Time Home Buyer Tax Credit Becomes Law.]

For home buyers: Those looking to purchase a home this year should be encouraged by the report, which signals that buyers will at least retain leverage in the real estate market through the spring season. Buyers already have a number of things going for them. The tax credit has been extended and expanded to include even current homeowners who close a transaction by the end of June. Thirty-year, fixed mortgage rates fell below 5 percent for the week ending January 21. And the housing bust has dragged home prices down to more affordable levels and reduced the risk of another crash. "You never know 100 percent whether you are at the bottom in prices, but prices are very stable right now," said Zach Pandl, an economist at Nomura Securities. "Low prices, low mortgage rates, and stable price expectations are major positives and probably more important fundamentally than the first-time home buyers tax credit."

But would-be home buyers should keep their eyes on mortgage rates, which are likely to head higher as the year progresses. The Fed was able to pull rates on 30-year fixed mortgages to historic lows by launching a program to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac. The program, however, is slated to expire at the end of the first quarter. And if private buyers don't step in, mortgage rates could increase significantly, perhaps by a half a percentage point, to 5.50 percent. But Pandl isn't overly worried about this potential to drive rates higher because the Fed could always decide to buy more securities if need be. "[The Fed is] exiting the market but they also have been hinting that they can return if mortgage rates rise too high," Pandl said. "And that's a very credible [possibility] because they have bought so many [mortgage backed securities]."

For home sellers: Although home sales should rise from December's depressed levels, those looking to sell property this spring will still have to have to work for it, said Guy Cecala, the publisher of Inside Mortgage Finance. "[Home sellers] should feel probably better than last year, but it was so bad last year that that's not a real fair comparison," Cecala said. "Anything is going to look better probably in the first half of this year than it did last year." That means home sellers will have to price their home aggressively, ensure the property is in tip-top condition, and be willing to entertain offers that aren't quite as strong as they would like. "I don't think anybody is going to be raising their prices," Cecala sad.

Source: By Luke Mullins , On Monday January 25, 2010