Home Price Declines Expected to Continue According to Two National Reports
This week, two national reports were released indicating that home prices will experience more declines before they stabilize. The first is the “The State of the Nation’s Housing” report issued by the Joint Center for Housing Studies of Harvard University, and the second is the monthly Standard & Poor’s Case-Shiller Home Price Index.
According to The State of the Nation’s Housing report, home price declines and mortgage defaults are the worst on records which date back to the 1960s and 1970s. The report also observes that the number of homeowners paying more than half their income on housing rocketed from 6.5 million in 2001 to 8.8 million in 2006. This reflects looser lender enforcement of debt-to-income caps and the widespread use of mortgages that have been resetting to higher payments. With so many stretched thin and home prices falling in many areas, foreclosures are skyrocketing. The number of homes entering foreclosure nearly doubled to 1.3 million in 2007 from about 660,000 in 2005.
The report concludes that these high levels of foreclosures will continue to exert extreme downward pressure on prices, especially in low-income and minority areas, where riskier subprime loans are most heavily concentrated.
However, the report does sound more optimistic about the medium- to long-term future of the market. “At some point demand will bounce back,” said Nicolas P. Retsinas, the director of the Joint Center for Housing Studies. “Historically, housing markets recover only after the economy has entered a recession and a combination of falling mortgage interest rates and house prices have improved housing affordability. It is difficult to judge how far away from these conditions we may be. It will take longer this time to rebound given the unusually high levels of foreclosures and constrained credit markets.”
The Standard & Poor’s Case-Shiller Home Price Index reported that annual declines in prices of existing single-family homes across the U.S. continued to worsen in April 2008, with all of the 20 MSAs (Metropolitan Statistical Areas) posting annual declines. Of those 20 MSAs, 13 are posting record lows, including 10 that are posting lows in double-digits.
According to David M. Blitzer, chairman of the Index Committee at Standard & Poors, “There might be some regional improvement, but on an annual basis the overall numbers continue to decline.”
The index reports that the Boston MSA is down 6.4 percent for the year, but is up 0.1 percent from March to April.