Many pundits are predicting that American house prices will reach bottom in 2012 after sliding by more than a third in the past five years. Then again, says Andrew Jeffery on Minyanville.com, “in 2009, 2010 was supposed to be the bottom. Then it was 2011.” So how realistic is the prognosis this time?
Prices are still falling, but they lag changes in supply and demand by a few months, and in this respect the picture is improving. Sales of new houses are up 10% year-on-year, and sales of existing ones, comprising 94% of the market, are at a ten-month high.
An index of pending house sales, a widely watched leading indicator, has hit an 18-month high. Record low mortgage rates and a slight loosening of credit conditions are bolstering demand, says Capital Economics: lenders are granting loans equal to 80% of the purchase price for the first time in four years. The number of houses for sale is falling, as is the number of people behind on their mortgage payments, so supply and potential supply are down.
But a fast recovery is unlikely. Due to the price falls, a quarter of homeowners are in negative equity and another fifth can’t extract enough equity from their house to qualify for a loan. So “up to half of all households are still effectively shut out of the mortgage market”, says Capital Economics. That will crimp demand.
There is still “a lingering huge excess supply… that still has to get absorbed”, says David Rosenberg of Gluskin Sheff, a wealth management firm. Millions of foreclosed houses are in the supply pipeline. Prices could well find a floor this year, but are likely to drift along it rather than recover.