Archive for February 26th, 2009
Thursday, February 26th, 2009
Two real estate indices released this week piled on the evidence that the country’s housing market troubles continue. On Tuesday, Standard & Poor’s released its Case-Shiller report, which found that home prices declined by 18.5 percent in its 20 U.S. cities from December 2007 to December 2008, the sharpest drop on record. A day later, the National Association of Realtors announced that sales of existing homes fell 5.3 percent in January to the lowest levels since July 1997.
According to Smeal’s Austin Jaffe, these indices have been in free-fall mode for the past 25 months. The most discouraging thing, Jaffe says, is that the rate of decline continues to accelerate. “Once there is a bottoming out of declining home prices, market psychology is likely to change quickly,” he says. “This day will come sometime—perhaps in late 2009 or during 2010—but it is not expected to come much sooner.”
Meantime, President Obama’s $75 billion Homeowner Affordability and Stability Plan aims to help struggling borrowers who have negative equity of no more than 5 percent by allowing them to refinance at lower rates with Fannie Mae and Freddie Mac. The program, Jaffe says, is expected to help as many as 5 million homeowners, but there are as many as 12 million U.S. homeowners facing negative equity. He says the president’s plan will provide some short-term relief, but in the long-run, the market fundamentals must change.
More from Jaffe:
There continue to be too many houses on the market due to declining prices and foreclosure sales. New construction is at record lows and there are serious questions about the future of homebuilding as an industry for the next several years. It’s a toss-up as to whether these mortgage relief programs will stabilize prices.
My best guess is that they will help many borrowers, but they will not solve the problem. Those who are not close to making payments will not be helped. And the overbuilding of the past at significantly higher prices will require drastic adjustments by the market. These adjustments will likely take some time and appear to be in the distant future.