Valuations Market Update 3/2/2012

Although housing prices are at fourth-quarter lows not seen since 2002, homeowners are still struggling to meet mortgage payments and the number of borrowers with negative or near-negative equity is increasing.

The Standard & Poor’s/Case-Shiller Index showed prices fell 4% year-over-year for December, amounting to fourth-quarter housing price lows not seen since 2002. Prices declined 1.1% month-over-month for both the 10- and 20-city composite measures.  18 of the 20 cities in the index showed declines, with Miami and Phoenix showing the only increases, up 0.2% and 0.8% respectively. The only city that came out on the positive side annually was Detroit at 0.5%.

David Blitzer, chairman of S&P indices, said, “In terms of prices, the housing market ended 2011 on a very disappointing note. While we thought we saw some signs of stabilization in the middle of 2011, it appears that neither the economy nor consumer confidence was strong enough to move the market in a positive direction as the year ended.”
Capital Economics believes, “With another 3 million owners likely to succumb to foreclosure and demand severely constrained by over 20% of mortgage borrowers having a loan worth more than their home, significant and sustained gains in prices probably won’t be seen until 2014 at the earliest.”
Patrick Newport, U.S economist for IHS Global Insight, believes we have yet to see the pricing bottom, stating that with, “The currently high unemployment and underemployment rates, and tight credit conditions, one gets a recipe for further price declines. Our view is that foreclosures, excess supply, and weak demand will drive down home prices as measured by the Case-Shiller indices down another 5-10%.”

According to the 2012 Housing Landscape report released by the Center for Housing policy, the share of working households paying more than half their income for housing between 2008 and 2010 went up from 21.8% to 23.6%. As home prices dropped in this time period, incomes dropped from $43,570 to $41,413, or around 5%, according to the study.
Author of the report Laura Williams stated that, “More and more people are interested in renting. Some people prefer it because it allows them to be more mobile in a tough job market. Others are postponing purchasing a home or facing difficulties obtaining a mortgage. Given the long lead times involved in responding to increased demand with increased supply, the rental market has tightened somewhat and rents increased.”

CoreLogic revealed in a release Tuesday (February 28) that the number of homes with negative equity went up for the 2011 fourth quarter to 22.8%, up from 22.1% in the third quarter. In combination with those in near-negative equity, or less than 5% equity in their homes, this number increased to 27.8%, up from 27.1% in the third quarter.
The underwater average for first lien borrowers was $51,000, and those with negative equity with first and second liens had an underwater average of $84,000. Both of these numbers equal a 130% loan-to-value ratio for each group.