Further price falls expected as real estate market recovers
Residential property prices in the US fell 0.1% in August compared with the previous month and are 4% below levels of a year ago, according to the latest figures from the Federal Housing Finance Agency.
The federal regulator and conservator of mortgage giants Fannie Mae and Freddie Mac said its home price index is now 19% below peak levels of April 2007 and at a level last seen in February 2004.
The August drop is the first monthly decline reported since March and shows that prices edged higher in the months heading into the summer season.
The price levels depend on location. For example price changes in August ranged from a drop of 1.3% in the West North Central division to an increase of 0.9% in the South Atlantic region, according to the FHFA.
Analysts are predicting further price falls as a nationwide recovery in the real estate market still seems some way off. According to Barclays Capital they could fall by another 7% although others have estimated higher price drops.
Barclays Capital says that a large decline is unlikely because the shadow inventory of four million to seven million homes is still not as severe as some expect.
‘Given that most borrowers evicted in a foreclosure process have to go and live somewhere, it makes more sense to look at total excess supply of homes including owner and rental units,’ the latest Barclays Capital report says.
‘Our estimate is that versus the historical norms, there are only a couple of million homes in excess housing inventory that need to be absorbed. Do not get us wrong, we are not presenting a bullish case for housing, all we are saying is that things are bad but not as bad as some might try to make us believe,’ it adds.
Barclays bolstered its belief that home prices will not experience an extreme decline by saying ‘contrary to what many believe, the administration can and likely will do things to control a significant downward spiral in housing in the near term’.
If that does occur, Barclays said the move will lead to slower home price growth, while preventing another dip over the next two years.
But analysts at Radar Logic believe the outlook is weak. Its August 2011 RPX monthly housing report shows that price fell 0.8% in August, the largest drop for this time of year since the crash of 2008. Prices declined 4.7% relative to August 2010.
‘We continue to see the negative effects of the supply/demand imbalance in housing. Until we truly begin to deal with it, the numbers will reflect the fundamental weakness in housing markets,’ said Michael Feder, president and chief executive officer of Radar Logic.