Reports Continue to Show Home Price Declines

CoreLogic and Lender Processing Services
(LPS) have each released their most recent Home Price Indices.  CoreLogic’s HPI covers December; LPS’s covers
the month of November.  Here is a quick
review of each.

LPS found that the average home price
for transactions during November was $199.000, down 0.6 percent from the
October average.  This is the fifth consecutive
month that this index has declined. 
Preliminary information on December sales indicates that the HPI might
have lost another 0.8 percent during that month.

When the market peaked in June 2006 the
total value of the U.S. housing inventory covered by LPS was $10.8
trillion.  The value has declined 30.6
percent to $7.5 trillion since that time.

Price changes were consistent across the
country, increasing in 13 percent of the ZIP Codes in the database.  Higher priced homes had somewhat small price
declines than those in the middle and low price categories with the range from
high to low covering only 13 basis points.

CoreLogic issues two sets of indices,
one including sales of distressed properties, the other excluding those
sales.  The HPI for all sales decreased
1.4 percent in December and was down 4.7 percent on an annual basis, the fifth
year in a row that this HPI has declined.   
The Index covering market sales was 0.9 percent higher than in December
2010 which, Core Logic says, gives an indication of the impact distressed sales
are having on the market.  The HPI excluding distressed sales posted its first month -over-month
gain since last July, rising 0.2 percent. 

Of
the top 100 Core Based Statistical Areas as measured by population, 81 showed
year-over-year declines in November compared to 80 that were down on a monthly
basis in November compared to October.

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Distressed Property Sales, Discounts Steady in Third Quarter

Sales of distressed homes, those in some
stage of foreclosure or bank owned (REO), accounted to 20 percent of all U.S.
home sales during the third quarter of 2011
compared to 22 percent of sales in
the second quarter according to information released Thursday by
RealtyTrac.  One year earlier such
distressed sales represented 30 percent of the housing market.

There were 221,536 such distressed
property sales to third parties, 11 percent fewer than revised second quarter
figures and 5 percent fewer than in the third quarter of 2010.  Pre-foreclosure sales (generally referred to
as short sales) totaled 92,824 sales or 9 percent of all sales, down 9 percent
from the second quarter and nearly identical to the number one year earlier
when pre-foreclosure sales represented 12 percent of the market.  Sales of REO totaled 128,712 properties, down
13 percent quarter over quarter and 8 percent from the previous year.  REO sales made up 12 percent of all sales in
the quarter compared to 13 percent in Q2 and 18 percent of sales a year
earlier.

Prices for distressed homes averaged
$165,322, up one percent from Q2 but down 3 percent from one year earlier.  The average discount from the market price
for distressed properties was 34 percent, the same as in the second quarter of
2011.  The discount one year earlier
averaged 37 percent.  There were
substantial differences, however, between the prices for pre-foreclosure
properties which averaged $191,119, a discount of 24 percent below the average
market price, and REO.  The latter had an
average sales price of $146,437 in the third quarter, a discount of nearly 42
percent, unchanged from Q2 and down from 45 percent a year earlier.  In the second quarter the discount for pre-foreclosed
properties was 23 percent and was it 24 percent in the third quarter of
2011. 

In six states distressed properties
sales accounted for a larger share of the market than the 20 percent national
average.  The states were Nevada (57
percent), California (44 percent), Arizona (43 percent), Georgia (34 percent),
Colorado (26 percent) and Michigan (23 percent).

The states with the largest
discounts for distressed property sales were Missouri (56.5 percent) and Massachusetts
(51 percent.)

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Investor Cash Adding Downward Pressure on Home Prices

Cash buyers, principally investors, may
be putting downward pressure on home prices according to the Campbell/Inside
Mortgage Finance Housing Pulse Tracking Survey released Monday.  The survey found that investors with cash in
hand are able to offer something that homeowners dependent on mortgage
financing cannot, a guaranteed sale with a quick closing timeline.  This seems to offset the desirability of a
higher bid with a mortgage contingency.   

The
Housing Pulse survey found that the trade-off between price and speed is
particularly true with offers on distressed properties because the lenders and
servicers liquidating the properties generally prefer transactions that can
settle within 30 days.  The Campbell
report states, “While investor bids may not be the
first offers accepted, they often end up winning properties after other
homebuyers are eliminated because of mortgage approval or timeline problems.
Appraisals below the contracted price are a common reason for mortgage denials.
Most mortgage financing timelines are now in excess of 30 days.”

The
survey reports that 33.2 percent of home buyers in December were cash buyers,
up from 29.6 percent in December 2010. 
However, 74 percent of investors came to the table with cash.  This is especially striking as the survey
found that investors accounted for 22.8 percent of home purchases in December,
changed only slightly from 22.2 percent in November.  But, Campbell says, “Despite their relatively
small share among homebuyers, investors have an outsize effect on home prices because
their bids bring down market prices.”

Real estate agents responding to the
survey commented on the low bids they are seeing from investors.  Campbell quoted anecdotal information from a
few agents indicating they are seeing investor bids 10-20 percent below list
prices, but with quick closings.

The total share of distressed properties
in the housing market in December continued at a three-month moving average of
47.2 percent, the 24th consecutive month that the HousePulse
Distressed Property Index (DPI) was over 40 percent.

The Campbell/Inside Mortgage Finance
HousingPulse Tracking Survey involves approximately 2,500 real estate agents
nationwide each month and provides up-to-date intelligence on home sales and
mortgage usage patterns.

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Harvard’s State of Housing Report Says Home Construction Now Adding to GDP

Steadier job growth and improving
consumer confidence are now boosting home sales and home prices may finally
find a bottom this year according to the latest State of the Nation’s Housing report released this morning.  The report, produced by the Joint Center for
Housing Studies of Harvard University, says further that stronger home sales
should pave the way for a pick-up in single-family construction over the rest
of 2012.

Conditions, however, will keep this
recovery “subdued.”  The backlog of
nearly 2 million loans in foreclosure means that distressed sales will remain
elevated and will keep a downward pressure on prices and another 11.1 million
homeowners are underwater on their mortgages, dampening both sales of new homes
and investment in existing units.  While
vacancies have been declining the report notes, they still remain well above
normal, holding down demand for new construction in many markets.

What the for-sale market needs most, the
authors say is a sustained increase in employment.  This might in turn bring household formation
back to normal levels.  The depressed
pace of homebuilding has been a major factor in hiring and pulled down growth
in the gross domestic product (GDP) from 2006 to 2010.  Since the beginning of 2011, however, both home
construction and home improvement spending have made a positive contribution to
GDP in four out of five quarters.

Another bright spot is the rental market;
the number of renters surged by 5.1 million over the decade of the 2000s, the
largest decade-long increase in the postwar era.  This reflects not only growth in those
populations which are historically prone to rent – the young, minority, and low
income households, but foreclosures have driven others into the rental market.

Still the rental market has not fully
benefited from the large echo-boom generation because the recession has forced
a lot of young people to put off leaving home which usually means a move into
rental housing.  Once the economy
improves the echo-boomers should give the market a significant lift.

The rising demand for rentals has
sparked rent increases in many parts of the country; 38 of the 64 markets
tracked by MPF research had rent increases that outstripped inflation and all
but one of the remainder (Las Vegas) had at least a nominal increase in
2011.  Even in some cities hard hit by
foreclosures and the economy in general (Detroit, Cleveland) rents are rising.

The increase in rents has, in turn,
helped to stabilize the multifamily property market where prices are were
reported up by 10 percent in the fourth quarter of 2011 from one year earlier
and multifamily construction starts more than doubled from its trough to a
225,000 unit annual rate, providing a welcome boost to construction.

Homeownership continues to slide,
dipping to 66.1 percent in 2011 from 66.8 percent a year earlier and 69 percent
at its peak in 2004, but it is still higher than in the period from 1980 into
the early 1990s.  Rates for older
households continue to climb as the population ages, but the homeownership rate
for younger households will probably continue to decline over the next few
years.

The number of new homes added to the
housing stock in the 2002-2011 period was lower than in any other ten year span
since the early 1970s so it is hard to argue that overbuilding is dragging down
the market.  The excess housing supply is
largely a reflection of the slowdown in housing growth which resulted from the
decline in the rate at which younger people are forming households as noted above
and also because of a sharp drop in immigration.  But over the longer run, the growth and aging
of the current population should support the addition of about 1.0 million new
households per year for the next ten years. 
Immigration remains an unknown in this calculation, but even assuming
net inflows are half what was predicted by the U.S. Census in 2008, household
growth should average 1.18 million per year in 2010-2020.

The recession took a toll on household
income but did little to lessen the burden of housing costs.  Between 2007 and 2010 the number of
households paying more than half of their income for housing rose by 2.3
million to 20.2 million.  While renters
accounted for the vast majority of the increase, the number of severely
cost-burdened owners also rose more than 350,000 as many households took on
expensive mortgages they were later unable to refinance.  In addition, this recent increase is on top
of an increase in cost burdened households of 4.1 million in 2001-2007.

These cost burdened families face a big challenge.  Among families with children in the bottom
expenditure quartile of income and with the most severe housing cost burden,
only about three-fifths of the amount is spent on food, half as much on
clothes, and two-fifth on healthcare as is spent by families living in
affordable housing.

The Joint Center said there are few
prospects for a meaningful reduction in this cost burden
.  Funding for the federal Housing Choice Voucher
Program has increased only modestly since the recession and the only
significant growth in subsidized rental housing is through the Low Income
Housing Tax Credit which continues to add about 100,000 affordable units each
year.  If the current calls for reducing
domestic spending are realized “the nation would move even further away from
its longstanding goal of ensuring decent, affordable housing for all
Americans.”

On the road ahead, with moderate gains
in multifamily and single family construction and improving sales of existing
homes, housing should be a stronger contributor to economic growth than it has been
in years
.  The rental market is back on
track, but the owner occupied market still faces the same pressures it has for
years; distressed properties which hold down prices and owners who are unable
to sell because they are underwater. 

Actions such as changes in the Home
Affordable Modification Program, the servicing settlement, and more rapid
disposition of properties where homeownership cannot be maintained are helping
the market.  However, the greatest
potential for recovery of the for-sale market is its historic
affordability.  The dive in home prices
and record low mortgages rates make homebuying more attractive than it has been
in years but the limited availability of financing that meets the needs of many
borrowers, strict underwriting guidelines, and rising fees are inhibiting
sales. “With key mortgage lending regulations still undefined, it remains to be
seen to what extent and under what terms lenders will make credit available to
lower income and lower-wealth borrowers.”

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CoreLogic: Home Prices Increased on Monthly and Annual Basis, Trend to Continue

CoreLogic is reporting that home prices, including sales of
distressed homes, increased on both a monthly and annual basis in April.  The company’s Home Price Index (HPI) increased
of 2.2 percent compared to March which marked the second straight month for an
increase.  Prices were 1.1 percent higher
than in April 2011, the second straight improvement for that metric as well,
the first time that has happened since June 2010.

When distressed sales, both sales of bank-owned real estate
(REO) and short sales, are excluded from the calculations, prices were up 2.6
percent compared to March and this was the third consecutive monthly increase.  The annual increase for this set of figures
was 1.9 percent.

CoreLogic initiated a new measure of pricing with the April
report; a pending HPI that will project price trends.  The pending HPI for April indicates another
2.0 percent increase from April to May. 
This new metric is based on Multiple Listing Service (MLS) data that
measure price changes in the most recent month.

From the peak pricing seen
in April 2006, the national index for all home prices has fallen 31.7 percent.  When distressed transactions are excluded, the peak-to-current change was 23.3 percent.  The
greatest losses (including distressed properties) have been in Nevada (-58.9 percent), Florida (-46.5 percent),
Arizona (-46.5 percent), Michigan (-43.6 percent) and California (-41.0
percent).

The states with the greatest increase in home prices
including distressed sales were Arizona (+8.8 percent), the District of
Columbia (+6.4 percent), and Florida (+5.5 percent.)  Montana and Utah each had increases of 5.4
percent.

When distressed sales were eliminated the greatest
appreciation was seen in Utah (+5.3 percent), Idaho (+5.1 percent), Mississippi
(+4.7 percent) and Louisiana and Arizona (+4.6 percent each.)

Prices are still dropping in a lot of states including
Delaware (-11.9 percent), Illinois (-6.8 percent), Alabama (-6.6 percent) and
Rhode Island (-6.2 percent).  These
figures included distressed sales.  When
distressed sales are not included Delaware still had a major loss of 10.1
percent followed by Rhode Island (-6.2 percent), and Alabama (-4.4 percent.)

Of the top
100 Core Based Statistical Areas (CBSAs) measured by population, 44 are showing
year-over-year declines in April, 10 fewer than in March. 

“We see the consistent
month-over-month increases within our HPI and Pending HPI as one sign that the
housing market is stabilizing,” said Anand Nallathambi, president and chief
executive officer of CoreLogic. “Home prices are responding to a restricted
supply that will likely exist for some time to come-an optimistic sign for the
future of our industry.”

“Excluding distressed sales, home prices in March and April
are improving at a rate not seen since late 2006 and appreciating at a faster
rate than during the tax-credit boomlet in 2010,” said Mark Fleming, chief
economist for CoreLogic.  “Nationally,
the supply of homes in current inventory is down to 6.5 months, a level not
seen in more than five years, in part driven by the ‘locked in’ position of so
many homeowners in negative equity.”

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