Has Housing Industry Hit Bottom Yet?
RENEE MONTAGNE, host:
A closely watched home price index released yesterday showed U.S. home prices down by a record amount. Still, spring is always a time of hope. As the weather gets better and more people go looking to buy homes, there maybe some signs of life. NPR's Chris Arnold reports.
CHRIS ARNOLD: The latest news on the housing market didn't seem too encouraging yesterday. The S&P Case-Shiller Home Price index showed prices down at 19 percent from the year before. They're down about 30 percent from their peak in 2006.
Mr. PATRICK NEWPORT (IHS Global Insight): These are awful numbers. These are the worst numbers that have ever been reported. There's hard to find a good detail in the report. Prices are falling at record-setting rates.
ARNOLD: That's Patrick Newport, an economist with IHS Global Insight. But Newport says it's not really a big surprise that home prices are still falling. The number of homes for sale has been very high for a long time, in part because of the foreclosure mess that keeps dumping more homes on the market. That's called the inventory of unsold homes.
Mr. NEWPORT: The inventory is either at or it's close to record levels.
ARNOLD: And that's basic supply and demand, right? As long as you keep piling more houses on the market, you know, if somebody has 20 houses to go choose from, they're not going to bid up the price of any one of them, right?
Mr. NEWPORT: That's right. It's basic supply and demand, and it's a big problem.
ARNOLD: It's a big problem because having home prices plummeting hurts the whole economy. It hurts consumer confidence. It makes people more likely to default on their mortgage and walk away from their house, if they owe more than it's even worth. That's means more foreclosures and more losses for banks. But all that said, in just the past few weeks there have also been some glimmers of hope here.
Mr. NEWPORT: Oh, a number of reports. Actually, there have been six good reports that have come out in the last couple of weeks: the new home sales, existing home sales, the housing permits and starts, the mortgage applications, which were up 32 percent in the latest survey week.
ARNOLD: Basically that means that more people were buying homes or looking to get mortgages. Building permits are starting to rise again too; that's a sign that some homebuilders are getting more optimistic. It's just one month's numbers, but it could mean that more people will start buying up that big troublesome supply of unsold homes. Prices have fallen, and mortgage rates haven't been this low in decades. Karl Case is a housing economist who helped design the Case-Shiller index. He's been in the more optimistic camp.
Mr. KARL CASE (Case Schiller Index): I remain convinced that there's something going on in the market this spring that wasn't there last year, and it makes me hopeful.
ARNOLD: Case says areas that are getting really hard hit with foreclosures are definitely still a mess, but as realtors like to say, housing is local. And in neighborhoods without a lot of foreclosures, home prices are holding up much better. Case had some anecdotes. He gave a talk to an industry group in Boston recently.
Mr. CASE: I asked for their reaction. I had eight or 10 people tell me that they had sold properties at or above asking price in certain parts of the city. And that's pretty extraordinary, because that was not occurring last year.
ARNOLD: Mark Zandi heads up Moody's Economy.com. He says some areas are more poised for a recovery than others - Boston, Denver, even Orange County in California. He says they're in pretty good shape because they don't have a big supply of unsold homes. Still, when it comes to the overall market, Zandi doesn't expect things to turn around anytime soon.
Mr. Mark Zandi (Moody's Economy.com): I think prices, you know, stop falling at the end of this year. I don't think they start rising again in any appreciable way until the end of 2010.
ARNOLD: And Zandi says stepping up efforts to avoid foreclosures is key here, because prices can't recover as long as we have literally millions of homes getting dumped onto the market at fire sale prices.
Chris Arnold, NPR News.
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