Home Prices: Why Indexes Don't Matter

All those recent housing numbers -- most of them showing slipping values -- may not even be worth reading until we figure out what damage "foreclosure-gate" may have wrought on the industry. Yes, fall is traditionally one of the slowest real estate selling seasons; only the holidays are slower. But analysts in the mortgage industry are concerned that fallout from millions of foreclosures that may have been improperly filed -- many of which have been frozen -- could wreak havoc in coming months. Should you, home buyer/homeowner, be concerned?

Home values still appear to be sliding. The sky is falling the worst according to the folks at Clear Capital, who claim the most recent data and report home prices fell 5.9 percent in the past two months, when we finally broke free of the first-time homebuyer tax credit booster shot.

CoreLogic says values fell just 1.5 percent.

The National Association of Realtors, usually the most optimistic, says home prices nationally fell 2.2 percent in September 2010 from September 2009, when we thought it couldn't get any worse. It was almost the same story with Fannie Mae/Freddie Mac loans, which show home prices fell by 2.4 percent in August 2010 from August 2009.

About the only glimmer of hope was the S&P/Case-Shiller report showing that home prices rose 1.7 percent in the nation's top 20 markets, but warned us those gains are decelerating. Why would Case-Shiller be a happier report? It's a running average and includes only home resales, not new construction.

But maybe things aren't so bad.

Distressed properties are still hogging about 35 percent of all real estate sales -- almost a third. But when you talk to the folks who work the industry, they say a few blue-light specials are in order before we get on the mend.

Dallas-based Housingwire, an independent media company covering the mortgage banking industry and real estate finance, hosted a state of real estate webinar that basically said it's not going to get better until it gets worse. Or at least until the banks take some serious markdowns. Laurie Goodman, senior
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management director at Amherst Securities, said she believes we cannot stem the oncoming tide of foreclosures without -- gulp -- more government intervention or significant principal reduction. Here's another figure to digest: Currently, 11.5 million American home loans are non-performing or distressed. Goodman says that before all is said or done, she thinks we'll see a mandatory principal write-down program, though the banks won't like it.

Then Kyle Lundstedt, managing director of the applied analytics division at Lender Processing Services, reported current mortgage delinquencies are now above 7 million distressed homeowners.He's also concerned at the rise in prime mortgage delinquencies, and over regional troubled hot pockets, like Florida. He added "13 percent of mortgages in Florida are in foreclosure. Not delinquent, not in default, but in foreclosure."

And with fresh, new delinquencies beginning to emerge, none of this spells good news for the housing market, says Lundstedt.

Yes, real estate is a local story and blue-chip real estate in certain areas is holding value. But hearing about depressing news in one market has its way of infecting others. As one Dallas broker told me just this week: buyers, even those with cash, are sitting on the fence waiting for the bottom or the elections or just some better news about employment -- waiting for something.

Me, I'm going to stay scared until Sunday. Then I'll listen to Mark Zandi, chief economist over at Moody's Analytics. Mark doesn't think Robo-gate will further depress home prices. The current, large inventory will continue to put downward pressure on home prices. But by this time next year, we should see better job conditions, as we are in Texas.

The Lone Star State, according to Dr. James P. Gaines, research economist at Texas A&M University's Real Estate Center, created 52 percent of all the jobs created in the U.S. between Sept 2009 and Sept 2010. And job creation right now is the most fundamental issue in triggering any kind of significant economic or housing recovery.

But with the lowest mortgage rates in the history of the world, Zandi thinks inventory will be absorbed and markets will be improved.

"We aren't quite at the bottom yet," said Zandi,"but we are getting close."

For more on home prices and related topics see these AOL Real Estateguides:

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Find out how to calculate mortgage payments.
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