Some considerations from Richard Suttmeier:
Since the recovery in house prices began last summer, homeowners and real-estate agents have embraced what many believe is a return to normalcy (forever rising prices).
In Wall Street-fueled markets like New York City, properties are once again getting multiple bids, and optimists are chattering about a quick return to old highs. If the trend continues, friends, neighbors, and real-estate agents will no doubt soon start repeating the adage that helped inflate the housing bubble in the first place: Real-estate is always a great investment.
But the trend won’t continue, says Richard Suttmeier, strategist at ValuEngine.com.
The temporary increase in prices has been driven by government efforts to prop up the housing market, Suttmeier says, and those measures have come to an end. A new wave of foreclosures is hitting the market. Fannie Mae and Freddie Mac have become black holes into which taxpayers must shovel endless billions just to keep the mortgage engine running. Most importantly, as measured by the Case-Shiller index, housing prices are still way too high.
In most major house-price indexes, prices have already begun to roll over and head back down. Suttmeier thinks this trend will continue. In fact, he thinks prices could fall another 25% nationwide.
For a good overview of the trends that concern Suttmeier, see fund manager Whitney Tilson’s latest presentation on the housing market.
New Wave of Foreclosures
Zillow recently released its first quarter Real Estate Market Reports for the nation and 135 metropolitan areas. The reports show that home values continued to decline nationwide in the first quarter, amid encouraging signs in California. However, growing negative equity and record foreclosures will likely delay a broader recovery.
The full national report, in its new, interactive format, is available at www.zillow.com/local-info or by emailing [email protected]. Additionally, in most areas data is available at the state, metro, county, city, ZIP and neighborhood level.
Topline National Results:
- U.S. home values fell 3.8 percent year-over-year, and declined 1 percent quarter-over-quarter, marking the 13th consecutive quarter of year-over-year declines. Home values declined year-over-year in 106 of the 135 metropolitan statistical areas (MSAs) tracked by Zillow.
- Home values in several large California markets have stabilized significantly, and show tentative signs of reaching a bottom.
- Negative equity remains high with 23.3 percent of all single family homes with mortgages underwater, up from 21.4 percent in fourth quarter.
- Foreclosures reached a new peak in March, with more than one out of every thousand homes (0.11 percent) being foreclosed.
The $8,000 first time homebuyer tax credit program has now run out, and so has the $6,500 repeat homebuyer program. Everyone knew that once those run out home prices would resume their natural and required path of price deflation, and foreclosures and underwater homeowners would be back in the news.