On one hand, housing market reports released last month showed that prices and sales are up from a year ago. The Standard & Poor's Case-Shiller Home Price Index showed a 2.3% year-over-year increase in March prices. And the National Association of Realtors said sales of previously owned homes rose 7.6% from March to April – a five-month high – and were up 22.8% from April 2009.
"A majority of the markets have seen price gains recently," said Lawrence Yun, chief economist at the National Association of Realtors. "A return to old-fashioned responsible lending and buying will help the housing market avoid disruptive and painful bubble-bust cycles."
But critics point out that recent data reflects government-incentive programs that offered tax credits to first time homebuyers, but those buyers were only eligible if they signed a contract by April 30. And interest rates for 30-year fixed-rate mortgages averaged 4.78% for the week ended May 27, nearing a record low previously hit in December. Those mortgage rates will eventually rise.
- Home prices for the March quarter though up from a year ago, were actually down 3.2% from the previous quarter.
- The inventory of unsold housing actually expanded last month.
- As many as 2 million homes have mortgage payments 90 days or more late, meaning they could be the next to join the "shadow inventory" of homes in the foreclosure process.
- And the government-assistance program has ended.
"The housing market may be in better shape than this time last year; but, when you look at recent trends there are signs of some renewed weakening in home prices," David Blitzer, chairman of Standard & Poor's index committee, said in a statement.
Some analysts also worry that the foreclosures yet to come will continue to prevent a price climb.
"We've seen price improvement in some local markets, but on a national basis prices still haven't hit bottom," Patrick Newport, an economist with IHS Global Insight, told Bloomberg.
While buyers have had chances to snag the house buying deal of a lifetime, some homeowners still risk losing money or defaulting on their mortgages.
The up-in-the-air status of the U.S. housing market prompted last week's installment of our Money Morning Question of the Week: Do you feel better or worse about the U.S. housing market? Have you tried to sell or buy a home in the past year? Are you more or less likely to try and buy or sell a home today, and if so, what might you do differently today than you would have before the financial crisis started? Have you noticed any new or unique real-estate trends in your community?
Following is a collection of reader responses detailing the housing market in their towns and their recent experiences in real estate.
Supply Outpacing Demand
In the Boise, Idaho area, we are small potatoes to the rest of the world.
But as far as our situation here, we have so much excess property (lots) available due to many subdivisions that were completely developed just before the bubble burst.
Builders can buy up these "ready to build" lots, complete with streets, curbs, streetlights, and sewer, water, and power all in place, for tremendously low prices. They are now beginning to build again with a vengeance, and because of the low prices they are paying for the lots, they can sell a brand new home for far less than existing homeowners can sell, considering the average mortgages owners have and how far underwater they are.
So supply continues to grow here, as demand stays weak. Some builders may be "back in business" but it only further hurts the "existing home" market. By the time you factor in the potential additional homes that will finally be foreclosed on, homeowners in the Treasure Valley area have a pretty bleak outlook to face.
I think if we look at the last bust in residential real estate in the west from 1979 to 1989, we are likely looking at least ata 10-year cycle again, before we can hope for a decent residential home market. Considering we are only four years into this mess, I expect we may have seen the bottom,or we may see it return, ending up with a double bottom before we can expect much improvement. Six years is too long for some people to wait, and so more people will decide to simply dump their homes on the banks' doorsteps and move on in life.
My moral and ethical standards will not allow for such an action, if I can help it, and so all I can do is continue to work on saving and accelerating payments to my mortgage to bring it down to the level of the current value of my home, which for me is still about $20,000 below my current mortgage balance. This is no fun, but life happens. The more people who stay committed to self-reliance and being honest in their dealings and commitments, the sooner America can regain solid footing.
Will that come to pass?
Sometimes It's Luck…And a Good Deal
After my wife and I returned from Ecuador in late February, with plans to sell our home and move down there for several years, we put our home on the market as a FSBO [for sale by owner]. We had talked to a real estate agent last fall, but she wanted us to repaint all the rooms in the house, replace the counter tops in the kitchen, and several other improvements before she would be willing to show the home, so we waited. She also recommended a price that I thought was too low, at $169,000.
So we decided to put it on the market ourselves at a price of $179,000, and immediately had people wanting to look. It is important to keep in mind that all real estate is local, but in this case, even at our asking price, our house was the cheapest per square foot of any home on the market within a ten-mile radius. We hurried to put it on the market because we expected that buyers might want to take advantage of the tax credit, but virtually everyone who looked at it was more concerned about job stability than about the credit. And no one who looked at the house even hinted that they thought that the price was too high, so we just kept advertising (local paper, Craigslist, sign out front, etc.) and showing it to anyone who wanted a look.
I did not keep count, but at a guess we showed it to at least a dozen couples, until about two weeks ago we got an offer for our full asking price. To make it even better, financing will not be an issue, because they have in hand over $150,000, and can borrow the balance on a short-term signature loan so they don't have to get approval for a mortgage. And if the bank gets sticky on that, then we will carry the loan ourselves, for a maximum period of five years. We are scheduled to close in three weeks, and I feel incredibly fortunate, although I am keeping my fingers crossed and praying until we actually close.
A big factor in our success is that there is a lot of government-funded employment in the area, and that keeps the employment and salaries up, at least for now. I worry about what may happen down the road, as we have a lot of friends here, and we don't want them to be hurt, but that is not my responsibility. It is also worth noting that some other houses are selling, but they are not moving fast. And homes at the low end of the market are doing better than the more expensive ones. It is also worth noting that prices here, while they ran up some during the boom, didn't rise like they did in many other parts of the country. We have now owned this home for 25 years, and our selling price is barely over twice what we paid for it ($84,000) in 1985. Back at the peak, in 2005-06, it might have sold for a maximum of $250,000, or maybe not.
It is also worth noting that when we bought this house, we got an adjustable-rate mortgage at 11% interest, and that fixed-rate mortgages were at 13.25%, such that an equivalent mortgage on the property today at 5% would have monthly payments close to what we paid back then. As interest rates came down, we refinanced twice to lock in lower fixed rates, and we paid it off several years ago, rather than following the crowds who were leveraging up to pull money out of their homes.
In conclusion, we priced it low, it sold, and I feel very fortunate.
– Gordon F.
High Inventory in Florida
The housing market is location specific. My daughter is a realtor in Virginia and had no foreclosures in her county. She is amused by buyers asking to see short sales and gives them my number in Florida. Central Florida is a different story. The house next door to me is a short sale for $250,000. This same house sold in 2006 for $435,000.
Florida needs two things: Jobs and a moratorium on building all types of housing until the inventory is reduced to pre-bubble levels. That means we don't need construction jobs. We need manufacturing, technology, healthcare and services. This will put a floor in the housing market from which we can rise to a fair market value for our homes. It will not be the levels of 2005-06, but it will be the levels of 2004, which were far more realistic prices.
On The Mend
Time to get back to 20% down, 30-year fixed mortgages. The country will get there – just a matter of time, and continued lower housing prices.
– Gordon C.
Need More Incentives
20% down, 30-year fixed mortgages will never happen without tax incentives to get America producing goods again…
– Timothy G.
Greed Wrecked the Market
How about this – no more hyped up TV shows like "Flip This House," or "Flip That House," or whatever! It was all propaganda and the public was led to believe that they could spend and spend on renovations and then put the house on the market for an exorbitant amount of money, sometimes three times [what] the piece of real estate was actually worth, and then went and bought "bigger and better," to get into even more unsustainable debt.
Let's just not be greedy in the next boom, ok?
– Fortunato V.
Cycle of Suffering
Trouble is, by the time the next boom comes along – and it will – it will be a whole load of new hopefuls, and as sure as night follows day, greed and fear will set in. I am talking about a long way off, years from now. First we have to suffer – a lot – to purge the debt accumulated.
– Jeff P.
Market Standing Still
We have been looking for a house in the Mesa, Arizona area since last September. We rarely even get our calls returned when we inquire to the phone number on yard signs. Many of the homes we looked at in September are still on the market, for $10,000 or so less now. It appears (from our realtor) that about 30% of the sales are falling out due to non-qualification. It is apparent that the banks have little interest in doing short sales or helping people remain in their homes.
The foreclosure homes are not in any way being maintained. We have seen pools and yards that were only overgrown in September and now are total disasters, requiring much redoing. We had planned to "get the Obama bucks", but most of the homes we liked are back on the market or still on the market at a saving at least equal to the "incentive"….
Not only have government incentives ended, but also people are running out of unemployment insurance. I predict the housing market will stagnate or go lower.
I find it interesting that farm prices are still going up as more large tracts are sold to big corporations that are moving vertically. The corporations are keeping commodity prices down to force the farmers to sell. And you wonder why food prices go up! The ‘middle' men will make sure they can buy all the land they want.
[Editor's Note: Thanks to all who responded to last week's installment of the Question of the Week feature regarding the U.S. housing market. Be sure to answer next week's question: How have new technology trends affected you? Do you want to own every new gadget or do you long for a simpler, less technologically dependent time? What do you think about the options for investors and consumers in the tech world: Are we in a good place or have we let ourselves become too enamored with "the latest-and-greatest" new product?
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News and Related Story Links:
- Money Morning News Archive:
Home Prices Decline 3.1% in First Quarter, FHFA Says
Home Prices in U.S. Cities Rise Less Than Forecast
- Money Morning:
Surge in Strategic Defaults Threatens Housing Market Recovery
- Money Morning News Archive:
Question of the Week Feature