Parsing Home Prices Proves Precarious

Mortgage

Another day, another double-dose of home price reports, a home sentiment survey and a weekly report on mortgage applications.

All seem to point in different directions.

Both Lender Processing Services and CoreLogic released home price data, the former for December and the Latter for January; however, LPS claims that much of CoreLogic's data comes from transactions in December, so you be the judge.

They both show prices down around 3 percent annually, but CoreLogic gives you distressed (foreclosures/short sales) versus non-distressed, showing that non-distressed prices are down just under one percent.

Why should we care about the difference?

Because well over a third of the housing market today is investors and first timers buying distressed properties, and that share will likely rise as foreclosures ramp up after the big "robo-settlement" between banks and state and federal governments.

You can see it in the weekly mortgage applications numbers. Home sales are rising, but mortgage applications to purchase a home are not. They are down nearly 8 percent from a year ago, despite a seemingly more busy spring market. Regular buyers are using all-cash because lending standards are still too tight, and investors are using cash because it gives them a competitive edge for distressed properties, especially in hotter markets where there is limited supply.

Limited supply? Yes. In Denver, real estate agents are mass mailing colleagues to ask if any listings are about to hit the market, according to anecdotal reports from Glenn Kelman, of Redfin. In DC, he says, agents are going door to door, looking for people willing to sell their homes.

And they may find them. A monthly survey from Fannie Mae found that the percentage of respondents who say it is a good time to sell rose by 3 percentage points to 13 percent, the highest level in over a year, while the percentage of respondents who say it is a good time to buy dropped 1 percentage point to 70 percent this month.

Respondents also said they expect rental prices to rise 3.5 percent over the next year, a slight increase since January. This in the face of new record affordability, according to the National Association of Realtors, whose affordability index broke the 200 mark for the first time ever. "100 is defined as the point where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a 20 percent down payment and 25 percent of gross income devoted to mortgage principal and interest payments," according to the Realtors.

So what are we to take from this onslaught of data and perception? Housing is moving again. Buyers are coming out of the woodwork, but make no mistake, there will be no great surge in prices and no return to "normalcy" any time soon. There is still far to much distress left over, especially in states where foreclosures require a judge, and it will take years to move through that distress. Prices nationally will falter more and then stay flat, but in certain markets where investors are driving sales and where prices dropped the most, we will see faster appreciation. In states like New Jersey and New York, where foreclosures will clog the system for years, prices drops will be steeper and longer.

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