An increasing number of Americans are starting to believe in home price appreciation again.
Perhaps it’s the excitement of an early spring market, perhaps the fact that unemployment has been steadily easing, or perhaps just the fact that we haven’t had an economic “crisis” in a good, solid six months.
Whatever the reason, 33 percent of respondents to Fannie Mae’s monthly housing survey in March said they expect home prices to rise, and rise an average 0.9 percent over the next 12 months. That’s the highest percentage of believers in over a year, and up a full five percentage points from February.
“Conditions are coming together to encourage people to want to buy homes,” said Doug Duncan, Fannie Mae’s chief economist in a news release. “Americans’ rental price expectations for the next year continue to rise, reaching their record high level for our survey this month. With an increasing share of consumers expecting higher mortgage rates and home prices over the next 12 months, some may feel that renting is becoming more costly and that homeownership is a more compelling housing choice.”
It may be a more compelling choice, and if you’re one of the 33 percent who think you stand to profit on the investment, and if you have the ability to obtain a mortgage or the cash to put down, then you will likely act on that choice. But that’s a lot of ifs, and gauging home prices today is next to impossible.
Don’t get me wrong, there are any number of data providers who will tell you that their reading on current home prices is “the” one to follow, and that all the others are “off” in some way. First you have to decide if you want to use a survey that includes sale prices of foreclosed homes and/or short sales (when the home is sold for less than the value of the mortgage). I’m not going to even dip into the treacherous waters of weighing these reports against each other, as that is a fool’s errand, but I will say that they all show home prices continuing to fall.
Let’s just take the two reports out this month so far: Core Logic has home prices nationally down 0.8 percent in February, year-over-year if you don’t include distressed sales, and down 2 percent if you do. Lender Processing Services is about to release a report showing January home prices down 3.2 percent annually excluding distressed sales but slowing in the monthly price drops. Just remember, distressed sales make up over one third of total home sales nationally, higher in some states, lower in others.
One interesting note, LPS’s home price index has a new feature showing the average discount on a foreclosure or short sale. The discount on foreclosures has been about the same over the past three years (29 percent) but the discount on short sales has jumped from 18 to 23 percent during that time.
Short sales have been increasing over the past year, as government programs have offered incentives and banks have tried to streamline the process. But you have to wonder…if the discount on short sales is nearing the level of foreclosures, what happens if it surpasses that level? What then is the incentive for a bank to do a short sale if it can lose less money on a foreclosure?
But I digress. Back to the optimism thing. With millions and millions of properties still in some kind of distress, millions of borrowers owing more on their mortgages than their homes are worth and home ownership still below historical averages, what exactly is going to push home prices higher?
Questions? Comments? And follow me on Twitter @Diana_Olick
Article source: http://www.cnbc.com/id/46995666?__source=RSS*blog*&par=RSS