Last year’s hopes for a sustained recovery in housing are shifting into concerns of a renewed downturn in home prices after a series of weak reports.
“The paradox of the housing industry is that with prices having come down and mortgage rates near the lows, affordability is up sharply and, yet, sales and starts remain stagnant,” said Steven Ricchiuto, chief economist with Mizuho Securities USA.
The median price for U.S. existing homes sold in March was down 5.9 percent from the past year and at 2002 levels, according to a report Wednesday from the National Association of Realtors.
The metro-Denver median for homes sold in March was doing better, off only 2 percent from a year ago.
The S&P/Case-Shiller 20-City Home Price Indices — another closely watched measure of home prices that will be out Tuesday — is headed in a downward direction that will soon reverse most of the gains from last year’s federal homebuyers tax credit.
Larry McGee, managing broker at the Berkshire Group in Denver, attributes weaker prices to the large number of distressed properties on the market. They accounted for 40 percent of existing homes sold nationally in March, with first-time buyers representing a shrinking share.
McGee, interviewed after returning from a sale, said it feels as if activity is creeping up, but it is hard to discern whether it goes beyond the usual spring uptick.
“The key issue is, will we continue to have an increasing number of sales as we get past the effects of last year’s tax credit,” he said.
Any sustained housing recovery will require lenders to make it easier for borrowers to qualify for loans and consumers to have more confidence regarding their prospects for employment and income, he said.
When economists talk about a double dip in housing, they are generally referring to home prices. Home construction and sales have fallen by such a large amount, it is hard to imagine them going much lower.
Prices have room to fall
“Housing sales and housing starts are probably at about as low a level as they can go,” said Steven Wood, chief economist with Insight Economics in California.
But home prices have more room to fall this year and next, he predicts.
“What I worry about is housing prices, which I think could easily drop another 10 percent or so,” he said.
Yale University economics professor Robert Shiller compiles an index that looks at standard U.S. home prices in inflation-adjusted dollars going back to 1890.
Home prices would need to drop another 20 percent just to get back to the trend line in place since the 1950s.
That matters because home equity represents the largest source of wealth for most households, and residential real estate investment has been an important driver in any economic recovery.
But housing continues to subtract from the nation’s gross domestic product, a key reason the recovery has been so anemic this time around.
Permits to build single-family homes nationally are off 77 percent in March from their peak in June 2005, and they are down 23 percent from March 2010 levels. On the plus side, they shot up 44 percent in March from a frozen and unusually slow February, according to a report Tuesday from the U.S. Census Bureau.
Single-family-home permits in Colorado are running 30 percent lower for the first two months of this year than last year, according to the National Association of Home Builders.
Existing-home sales have held up better than new-home sales. They rose 3.7 percent in March from February to a seasonally adjusted annual rate of 5.1 million, according to Wednesday’s report from the National Association of Realtors.
But they are 6.3 percent below the March 2010 pace, and a record share of sales is going to investors paying cash.
While analysts say those sales are necessary for markets to bottom, an estimated 1.8 million homes are in the “shadow inventory” of properties likely to end up as distressed sales, according to CoreLogic, a real estate data company.
Metro sales off 11%
For metro Denver, March home sales were off 11 percent from a year earlier, according to Metrolist.
With federal deficits mounting and commodity prices rising, mortgage rates, a key piece of housing affordability, may come under pressure, predicts Boulder housing economist Michael Kone.
“The Fed has pumped so much liquidity into the system that it has kept interest rates low,” Kone said. “When that stimulus is withdrawn and the liquidity dries up, what happens?”
Kone thinks mortgage rates could bump up from under 5 percent to 6 percent and higher once the Fed reduces its purchase of Treasurys this summer. A similar spike in rates in the middle of the last decade was what pushed an overextended housing market into its current six-year slump.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
