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US real estate prices remain in a steady downward trend. However, as of January, 2008, we see trend differentiation among the three grades of pricing that we track (“investor grade”, median, and “luxury”). Luxury homes began to hold their own, while lower-priced properties (median and especially investor grade homes) continued their declines. We track for “For Sale”, or asking prices. The overall downward trend is corroborated by the OFHEO index of sold home prices, which has a one quarter lag. The good news, if it can be called that, is that real estate has performed no worse than the stock market over the last 18 months. The chart below shows pricing trends on a weighted-average basis across 379 US cities.
The percentage of cities and listings nationwide that have experienced price declines over the last quarter is also increasing. In other words, more markets are again losing value rather than recovering value. The chart below shows how the decline is, for now, becoming more pervasive.
There are several reasons for the continued decline, and some of the most common reasons are low consumer confidence and tightened credit. The Federal Reserve Board’s most recent survey of bank loan officers (www.federalreserve.gov/boarddocs/SnLoanSurvey/) reports continued across-the-board tightening of credit. This applies to lending for prime, subprime, and alternative (e.g., alt-A) loans, and home equity lending. It also reflects trends across the board (commercial and industrial loans, commercial real estate, and consumer loans and credit cards). Tighter credit shows up as stringent terms (such as higher spreads) and higher credit standards. Until Congress’ TARP bill begins to ease credit and provide direct support to borrowers, housing demand will continue to be choked.
Notably, inventories appear to have stabilized nationally. Both the numbers of “for sale” listings and the inventory of distressed and FSBO properties appear to have settled out. The good news it that there is no new net inventory flooding the markets, but there is also no net absorption of the existing inventory.
Distressed and FSBO inventory still comprise a whopping 42% of total inventory on the market. The Wall Street Journal has reported that there may be as many as 3 million mortgages at risk of default, which means that the ‘distressed inventories’ shown above may double unless Congress’ TARP assistance catches them before they fall.
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