Barron’s: House Prices are About to Bottom

A recent article in Barron’s offers an in-depth look at the reasons they believe housing prices are about to bottom nationwide. According to Barron’s:

This real-estate rout has been more painful than prior ones, but it may be shorter-lived. Indeed, there are early signs of recovery.

Among the article’s highlights:

Total inventories fell in May to 4.49 million existing homes for sale, or a 10.8-month supply at the current sales pace, down from an 11.2-month supply in April, according to the National Association of Realtors.

Note that Las Vegas, at 8.9 months of inventory is actually significantly below the national average.

Treasury Secretary, Henry Paulson, recently noted that inventories of new single-family homes are down 21% from a 2006 peak, while existing-home sales appear to have flattened over the past several months, indicating that demand may be stabilizing.

Note that Las Vegas existing-home sales have been rising steadily since January.

Home prices rose, albeit slightly, between March and April, in eight of the 20 markets covered by the index (Boston, Charlotte, Chicago, Cleveland, Dallas, Denver, Portland, Ore., and Seattle). This was in sharp contrast to the readings for March, which showed prices falling in 18 of the 20 surveyed markets. Also, the pace of monthly price declines is starting to slow in most of the markets with negative readings.

Note that Las Vegas is one of the markets with slowing declines.

In general, transaction-based home-price indexes, including S&P/Case-Shiller, may be painting a bleaker picture of price trends than warranted. That’s because subprime housing, though less than 10% of the total U.S. housing stock, accounts for a far larger share of current sales volume, owing to spiraling defaults and distress sales.

Help for the housing market also may be on the way in the form of proposed congressional legislation that would allow the recasting of some $300 billion in troubled subprime mortgages through the Federal Housing Administration. The bill… could help to ease conditions in the subprime market.

Note that given Las Vegas’ large percentage of subprime mortgages, this bill would have significant impact locally.

A government takeover of loss-ridden Fannie and Freddie — the subject of widespread speculation late last week — would ease concerns about the continued availability of credit in the housing market.

Housing starts have dropped with the same speed and volume as they have recently just three times in the past 35 years.  Each time, the market has rebounded dramatically, and quickly.

Surprisingly, Chip Case, of “Case-Shiller” fame, whose knowledge of the housing market goes back decades and is based on a voluminous collection of data, is among those who think home prices may be nearing a bottom. Case notes, among other things, that new housing starts fell to 975,000 in April from a peak rate of 2.27 million in January 2006…”Every time this has happened before, housing-market activity has rebounded within a quarter and caught experts by surprise,” he says.

Note that Las Vegas housing starts dropped even more quickly and further than national starts.

Jim Paulsen, chief investment strategist of Wells Fargo’s primary investment unit, expects home prices to steady by year end, with the pace of foreclosures slackening shortly. Most of the subprime debt at the center of the current crisis already has been written down by financial institutions, he notes.

Note that Las Vegas started to go through the foreclosure cycle well ahead of other markets.

“Folks who compare this home-price cycle to the one that occurred in the early ’80s obviously have short memories,” Paulsen says. “In the 1980s the economy was in a deep recession, mortgage rates were at 17% or more, and unemployment [was] hitting a post-Great Depression high of nearly 12%.”

Note that despite the recent drops in the stock market, the national economy is still growing, interest rates are in the 6% range, and unemployment is still in the 5% range.

-Frothing Mark


One Response to Barron’s: House Prices are About to Bottom

  1. Bill says:

    The only way you qualify for the housing bill is if you are a owner occupier. Most of the problems we have in vegas is investor foreclosures, they bill does not assist them. This bill ill not assit homeowners with prime loans. Also there is no bill until the house agrees and the President signs it. The president has threatened veto before. You should read the Goldman Sachs predictions of Fannie/Freddie. They say let it go down. Goldman Sachs is propably the best brokerage/investment house out there. That is very scary. I have a friend who makes 120K and he might not be able to close next week since he has only 10 percent down. The mortgage company is balking, they want all kinds of points and fees to induce them into closing. As usual in America the few bad apples ruin it for the masses. These RE investors wanted Stack Market will guess what they are getting stock market risk. I have lost a ton on paper in Wynn stock in that last year and you don’t hear me bitching to Congress, come help me. I took a risk and it didn’t pan out. Luckily I was a very early investor, so I am still up.


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