Posted on September 11, 2012
Well, here’s some good news: On Tuesday the Case-Shiller Index showed that June home prices in 20 U.S. cities were higher than a year ago, the first year-over-year gain since 2010, when a first-time homebuyer tax credit boosted sales. “The better comparison is probably December 2006—the last time prices were in positive territory excluding tax-credit-induced distortions,”Deutsche Bank (DB) economists wrote in a note on Tuesday morning.
The question is: Will prices hold or even grow in the fall? Or will they continue the market’s recent trend of what CoreLogic (CLGX)calls a “Sisyphean slide,” by which price decreases in the second half of the year erase any gains. In normal times, home prices often climb in the first half of the year, as families gear up to move and get settled before the school year starts, and then flatten in the later months, when there is less activity. For the past several years, though, prices have fallen in the second half of the year, in part because fewer homeowners were selling and low-priced foreclosures made up a bigger share of the market.
CoreLogic points that a few factors now work in favor of bucking the Sisyphean problem. In particular, rising home prices have reduced the number of borrowers who owe more than their home is worth, which has been a drag in getting non-distressed properties on the market and has discouraged potential buyers who are looking to move. When prices rose in the past few years, they were drowned out by foreclosures. This year foreclosures have been dropping, too. In July, there were 58,000 completed foreclosures in the U.S., down from 69,000 a year ago, according to CoreLogic. It attributed the decrease to banks doing more “alternative resolutions” such as short sales, which tend to fetch higher prices than foreclosures. Because it’s unlikely that foreclosures will again flood the market, CoreLogic thinks demand will be sufficient to meet any increases in supply without hurting prices.
That’s not to say there aren’t headwinds. Unemployment is still high and consumer confidence is trending down. Moreover, investors have been a powerful force in bumping up prices, accounting for more than a quarter of all homes sold in May. Prices have now increased so much that some are bowing out, according to Campbell/Inside Mortgage Finance HousingPulse Tracking Survey. Investors accounted for fewer than 22 percent of sales in July, diminishing their role in propping up prices. The market will depend on regular consumers to make up for declining investor demand. If everyday buyers step in and prices hold, we’ll need to find a new Greek myth. That of Sisyphus will no longer apply.