Posted on: Wednesday, December 16, 2009

Home Values Stabilize

By Paul M. J. Suchecki
Tags: economic news, home value rebound, ...
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The number still seems daunting. Owners in the US have seen the worth of their homes decline by $500 billion in 2009, according to Zillow Real Estate Market Reports. Compared to last year’s loss of $3.6 trillion, the news is good. In fact in nearly a third of the markets tracked, home values increased for the year led by the Boston Metropolitan area with the largest equity gain of $23.3 billion. The biggest losses for the year were Los Angeles, down $60.8 billion, Chicago, with a drop of $49.6 billion, and New York City showing a decline of $49 billion.

Fewer mortgages were underwater in the third quarter of 2009, from 23% to 21% of all single family homes. According to a study by the Boston Federal Reserve Bank, when a home loan is worth more than the property backing it, that fact is a major cause of default and foreclosure. When homeowners have equity in their homes they tend to sell rather than walk away. Boosted largely by the homeowner’s tax credit, existing homes sales increased by 10.1% October while new home sales rose by 6.2%.

Two factors are now in place for a home value rebound, low home prices and mortgage rates, now at 4.9%. The Mortgage Bankers Association warns against unbridled optimism. In its December 2009 Mortgage Finance Outlook, the MBA cautions, “The most important factor driving recent declines in real estate market activity and increases in delinquencies and foreclosures has been the ongoing job losses and rising unemployment rates.”

Yesterday the Federal Reserve Bank announced that industrial production in the US grew by 0.8% in November, the most since August which helps explain why the nation’s unemployment rate had dropped unexpectedly to 10%. A better measure of job health is the underemployment rate which also counts people who recently looked for work but have stopped, as well as those who are involuntarily working part time. It’s now at 17%.

Since homeownership is a long term commitment, consumer confidence is essential for a borrower to commit to such a purchase. Unfortunately, it is still lagging. In the Conference Board’s most recent report, 11/24, the Consumer Confidence Index ticked up slightly to 49.5%, showing that most consumers are still pessimistic about their economic future.

While demand could be stronger, supply has started to tighten. Single family home starts dropped to 470,000 in October from 511,000 in September. Inventories of unsold homes have declined from 8 months in September to 7 months in October.

Another measure of economic health can be gauged by looking at the commercial real estate market. There mortgage delinquencies increased to 3.11%. Four states, Nevada, Rhode Island, Arizona and Michigan, have delinquency rates over 10%.

It seems as is the worst is behind homeowners when it comes to equity decline although pending ARM resets and blowback from the commercial real estate market could hamper major gains anytime soon.