Home Prices Rise: Fluke or Sign of Recovery?
"This recent national change in price direction is encouraging for the overall housing sector, yet it is still too early to determine whether this current uptick in home prices is a temporary reprieve or the start of a sustained recovery," says Alex Villacorta, senior statistician at Clear Capital, which today released its monthly Home Data Index Market Report that provides analysis of how local markets perform compared to the national trend in home prices.
This increase in prices is especially meaningful as the first months of the year are typically affected by a seasonal slowdown in sales activity. Villacorta suggests this might be signs that buyer demand may be returning in anticipation of a potential start to a sustained recovery.
However, it is just one month of data we're talking about. When you look at quarter over quarter, and year over year, prices are still declining, albeit at a slower rate, Villacorta told AOL Real Estate.
"Prices today over where they were four months ago is down," he says. "Year-over-year is also declining, but the rate at which it is declining is also softening."
The increase in prices from January to February could possibly be attributed to how some buyers backed away from foreclosures amid the robo-signing controversy. After all, some buyers were too afraid to buy a foreclosure only to find out that the bank fraudulently closed on a homeowner and the home has to be given back.
When it came to buying lower- , perhaps some buyers just decided with all the short sale "the price may not be worth it," he says. And there could always be those who just had more of an urgency to move in.
Another reason to take the one-month price increase with a grain of salt until more of a pattern is established is because we've seen price increases before.
As the April expiration for the tax incentives were approaching buyers made a mad dash to purchase a property and we saw a boost in home prices, even just a tad, right after that.
"By mid-August we had seen quarter over quarter, monthly and weekly measures that all pointed to price increases, but mid-August it turned to the negative," says Villacorta.
So when you consider late last summer prices were up by a weekly measure, monthly, and quarterly, while this current increase is only for one month while the other measures saw a decline, this might not be that much to get excited about.
To boot, banks have been holding on to some of its foreclosure inventory. The shadow inventory is still waiting to be released, which potentially will drive prices back down. Though don't expect truckloads to be released all at once, nor all in one market, driving prices to basement bargain lows, says Villacorta.
"[Banks] are not serving themselves any benefit by doing that. If prices come down it affects the whole group," he says. Instead he predicts banks will release a sprinkling of REOs per market rather than saturate any one market so that they are not creating a repeat of what occurred just over two years ago.
"What we observed in 2008 when we saw large REOs come to market is it pulled the spiral downward as [banks] tried to get those off their books and each one trying to undercut the next. If that were to happen again, a collective dumping on the market of these assets -- then we may see a downward decline one more time. But it is a little far fetched to see that again because we've seen the pain it inflicted."
Still, Villacorta is sure to clarify that he can't speak for the banks. "What each individual bank does is their own prerogative."
But on a market-by-market basis with Clear Channel's latest report, only Detroit; Fresno, Calif.; Las Vegas; Raleigh, N.C.; San Francisco; and Tampa, Fla., experienced larger quarterly price declines over last month (as can be seen in charts below). Detroit's -12.4 percent quarterly price change is up 2.7 percentage points from the end of December as the MSA continues to be dogged by high levels of distressed housing activity and a troubled economic environment with double digit unemployment throughout the state.
Thirteen of the highest performing markets posted positive quarterly gains, according to the report. Four MSAs posted large quarterly gains as compared to last month's report: Cleveland (12.6) and Dayton, Ohio (9.6); along with Houston (6.8), and Chicago (6.3) experienced the biggest quarterly percentage point improvements.
Cleveland's improvement can be attributed to a softening of the local foreclosure market and median home prices in Cleveland are less than $100,000. This implies that even moderate fluctuations -- like an $8,000 swing -- can translate into considerable percentage changes for this area. Further, Cleveland home prices are still down more than 55 percent from its market peak in 2006, demonstrating the magnitude of how far this troubled housing market has fallen during the last five years.
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