Aftershocks In Housing Market Could Slow Appreciation For Years

Staggered foreclosures portend a slow climb for US housing prices back to healthy levels, with any progress likely offset by the deflating effect of distressed property sales. Although …

Staggered foreclosures portend a slow climb for US housing prices back to healthy levels, with any progress likely offset by the deflating effect of distressed property sales. Although analysts don’t expect additional price declines to exceed 5%, a recent dip in new home sales is a more troubling sign. See the following article from HousingWire for more on this.

The rate at which home prices are dropping may be slowly coming to a halt across the United States, with analysts at Barclays Capital predicting only a 4 or 5% dip left to go before stabilization. But the rate of appreciation on the back side of that bottoming out is likely to “muddle along for the next few years,” they say in a weekly letter to investors.

This conclusion is based on expected aftershocks of the “smoothed-out” housing supply model, where millions of potential foreclosures are being averted temporarily with government-backed programs or by suppliers slowing the rate in which foreclosures hit the market. On the positive side, they say this effort actually prevented home prices from falling considerably more.

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But the smoothed-out method, while successful on the supply side, is coming at a cost: “The overhang of distressed inventory is a huge negative technical – it suggests that any price rise will probably be met by increased distressed sales,” say the securitization analysts in their Residential Credit Strategy report.

“Meanwhile, home prices do seem a little cheap, using fundamental metrics like price/rent and price/income ratios, but not extremely so,” they add. “Thus, a meaningful rise in prices would need big changes on both the technical and fundamental fronts.”

Home prices dipped only slightly in December, according to Standard & Poor’s Case Shiller US National Home Price Index. However, it is the recent drop in new home sales, down 11.2% from December to January, that the analysts find “disappointing.”

And in added response to claims that housing is becoming more and more affordable in the United States, the report adds that “affordability indices are not good predictors of future moves in home prices.”

This article has been republished from HousingWire. You can also view this article at
HousingWire, a mortgage and real estate news site.

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