Homebuyers Responding to Low Home Prices

Low home prices in the U.S. housing market are nothing new, but now reports indicate homebuyers outside of typical investors are finally responding to the bargains. Transaction volumes …

Low home prices in the U.S. housing market are nothing new, but now reports indicate homebuyers outside of typical investors are finally responding to the bargains. Transaction volumes are improving, and more home sales in places like Phoenix is taken as a sign by analysts that a real recovery may be in the making. Even so, report authors are quick to note that huge investor activity in Phoenix, Las Vegas and Atlanta are helping to drive down inventories, and government and banking machinations continue to distort distress in the market. For more on this continue reading the following article from TheStreet.

All three "headline composites" of the latest and widely watched S&P/Case Shiller home price indices ended the first quarter of 2012 at new post-crisis lows.

But one of the authors of the indices, Robert Shiller, told CNBC Tuesday: "We have encouraging signs in the market, we are seeing some signs of hope."

His cohort, S&P’s David Blitzer, agreed. "Digging into the details, it’s a whole lot better than the headlines," he said in the same interview.

Finally, index co-author Karl Case explained: "We lag, and the indicators for the last three, four months on the quantity side have been real positive, so we look like a bottom. You have to pick to find real negatives."

So why are they optimistic?

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Markets like Phoenix and Las Vegas are coming back — Phoenix in home prices, and believe it or not, Vegas in construction.

But just because they are coming back from extreme lows does not mean that we’re going to see huge price appreciations any time soon. This is just the second-straight month that we’ve seen monthly price appreciation (seasonally adjusted) on the indices, and it’s very slight, under one percent.

"Transaction volumes for both new and existing homes have improved somewhat over the past few months, but that doesn’t mean that prices will rebound on the same timeline," notes Miller Tabak’s Peter Boockvar. "The market has reached the point that low prices themselves are finally driving some better demand again. Prices will eventually follow, but in fits and starts, and it’s still very possible that they go lower still."

One cannot discount distress in the market, especially when we look at markets like Phoenix, Las Vegas and Atlanta. Phoenix and Vegas are seeing huge investor demand, which has pushed inventories lower, while Atlanta is still working through its distress and prices therefore are plummeting at the worst pace in the nation.

With all sorts of government and banking forces distorting the distressed market, either through the $25 billion mortgage servicing settlement, or through various government incentives to keep loans out of foreclosure, it’s hard to say whether this improvement in prices is permanent.

"As servicers implement settlement guidelines, we will see an increase in short sales and foreclosures, as a very large number of borrowers, especially those in PLS [private label securities], won’t qualify for [principal] write-downs," says Josh Rosner of Graham Fisher. "This is especially true for those who have failed to make payments or do necessary maintenance for many months. These problems will be especially felt in the former bubble markets."

While many analysts, like Ed Stansfield at Capital Economics, believe home prices have, "reached a floor," they admit there continue to be downside risks, not the least of which is the euro-zone crisis.

"For now, we continue to expect any upturn to be modest. Given the likelihood that the divergence between city-level performances will remain high, further house price gains may well be interspersed by the occasional reverse," Stansfield says.

This article was republished with permission from TheStreet.


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