The State Of The U.S. Housing Market

Robert Siegel talks to Karl Case, professor of economics at Wellesley College and co-founder of the S&P Case-Shiller Housing Price Index, about the state of the U.S. housing market, as sales remain down but foreclosure rates appear to be leveling off.

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MELISSA BLOCK, host:

From NPR News, this is ALL THINGS CONSIDERED. Im Melissa Block.

ROBERT SIEGEL, host:

And Im Robert Siegel.

The operative word when it comes to the U.S. housing market appears to be: Down. Thats not entirely bad, interest rates are down, they're approaching record lows - below five percent, which is good news for buyers and for owners able to refinance.

But instead of driving people into the market, sales are also down. Thats likely because April 30th marked the end of the federal government's popular homebuyer tax credits. The only thing that isnt down these days is the number of foreclosures, though that does appear to be leveling off.

For a general housing check-in, Im joined now by Karl Case, professor of economics at Wellesley College and co-founder of S&P Case-Shiller Housing Price Index. Welcome to the program once again.

Professor KARL CASE (Co-Founder, S&P Case-Shiller Housing Price Index): Pleasure to be here.

SIEGEL: And let's start with sales. Demand for purchase loans is down 35 percent over the last month. Were the homebuyer tax credits essentially the housing market's Cash for Clunkers program?

Prof. CASE: It was. I mean it certainly led to an increase in purchases. If you go back to November when they thought it was going to expire the first time, and when it was ultimately extended, sales peaked at 6.5 million. Thats a very good number. It then came down substantially by January and then picked back up, anticipating the end of the credit in April. And housing sales are down now but they're still up relative to a year ago, when they really were down in the four million range.

They're up this month at about 5.7 million. Thats a pretty good figure but it's not going to clear the market anytime soon.

SIEGEL: What conceivably might clear the market sometime soon, if interest rates are this low and we're still so far away from that?

Prof. CASE: Well, right now it's a big matter of expectations. People make a big purchase when they buy a house, and they have to have some confidence that they're going to have a job and that they're going to be able to pay for it. And particularly with prices falling, they're worried about buying an asset thats going to fall in value. So, household expectations or mood or confidence, it really does play a big role in this market.

SIEGEL: Now, as I said, foreclosures appear to be leveling off. But there are reports suggesting that it isnt because there are fewer borrowers who are delinquent but it's because the banks are moving more slowly to push those borrowers out of their homes.

Prof. CASE: Well, it's a variety of things. In part, it's this phenomenon that the bankers and the people who own the property in foreclosure are acting more like traditional sellers, by not lowering their prices very much. They saw that the market was coming back and they're now bleeding the property out, hoping to get a higher price. And so the fact that the people who used to just throw this stuff on the market, they're not just throwing them on the market today. They're waiting it out more like traditional home sellers.

The biggest problem is the inventory of vacant property, which we have despite the fact that we're not building any new. Housing starts are at 50-year lows. There's no production. That normally clears the market as households come back.

But right now, we're seeing inventories of vacant property very, very high and they're not going down. And that can only be due to one thing, that people are not forming households, people are not getting jobs and going out and renting and buying houses. They're doubling up and tripling up and fewer people are coming here. So the existing stock of vacant property is very, very high.

SIEGEL: Now, there's a confusing story in the most recent Case Shiller Home Price Index. Some of the hardest hit cities in the country - Los Angeles, Phoenix, San Diego - all posted price increases compared to a year ago. Does that tell you anything other than prices a year ago were catastrophically low in those places?

Prof. CASE: Thats the main point is that this - in some of these areas, house prices have fallen 60 percent. And when house prices come down that far and interest rates are low, people are going to start buying them. And as soon as that demand comes back into the market, it results in a stabilization of prices. But you're exactly right that they appear to be going up because they were so low...

(Soundbite of laughter)

Prof. CASE: ...at the beginning of the period.

SIEGEL: Professor Case, thank you very much for talking with us.

Prof. CASE: My pleasure, Robert.

SIEGEL: Thats Karl Case, a professor of economic at Wellesley College, co-founder of the S&P Case Shiller Housing Price Index.

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