Home/Mortgages/Housing Prices Up in Latest Quarter but Challenges Ahead

September 8, 2011 (Jeff Alan)

U.S. home prices increased by 4.0 percent in the latest rolling quarter according to Clear Capital’s Home Data Index (HDI), but the growth rate shows signs of slowing as the summer buying season ends and eroding consumer confidence could make for a bumpy ride for the rest of the year.

All four regions posted quarterly gains for the second consecutive month with the largest price gains posted in the Midwest (7.3%), followed by the Northeast (4.9%), the South (3.5%), and the West (0.7%).

But the summer’s gains were not nearly large enough to offset last year’s price declines as all four regions continued to post year-over-year declines with the Midwest suffering the largest decline of 9.8 percent followed by the West (-6.9%), the South (-5.7%), and the Northeast (-2.0%).

However, in the last six months prices are showing some signs of stabilizing as prices in the Northeast have increased 4.2 percent, in the Midwest and in the South prices have increased 1.9 percent, and in the West prices have increased 0.1 percent.

“Although the summer gains appear to signal strong growth in home prices, it’s important to keep in mind that these gains are off of the record lows of winter,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital. “With summer coming to a close and the price gains clearly starting to level off, the market is at a critical juncture as to whether it can avoid another significant downturn into the slower buying seasons of fall and winter.”

The Real Estate Owned (REO) saturation rate declined nationally to 26.3 percent at the end of the recent quarter compared to 28.7 percent at the end of the previous quarter as areas with lower REO saturation rates generally continued to post better performance in housing prices.

In the 15 highest performing markets, three of markets experienced year-over-year price gains and extremely low REO saturation rates. Pittsburgh posted a year-over-year price gain of 3.9 percent and an REO saturation rate of 6.3 percent, Rochester posted a price gain of 0.9 percent with a saturation rate of only 5.9 percent, and Washington D.C. posted a 0.8 percent price gain with a saturation rate of 14.2 percent. Most of the remaining 12 areas that didn’t see a price increase generally posted smaller declines in housing prices from the previous year.

In the 15 lowest performing markets, large year-over-year price declines were generally posted in areas with the highest REO saturation rates. Detroit posted a year-over-year price decline of 17.9 percent with an REO saturation rate of 51.2 percent, the Seattle-Tacoma-Bellevue area posted a price decline of 15.8 percent and a saturation rate of 21.9 percent, Tucson posted a price decline of 14.2 percent and a saturation rate of 40.2 percent, and Jacksonville posted a price decline of 13.2 percent and a saturation rate of 33.5 percent.

Seasonal sales gains are giving way to a softening market as consumer confidence continues to be eroded by continuing bad economic news which is keeping potential home buyers on the sidelines.

Home sales rates have already began to slow and if mortgage servicers finally settle with government regulators over foreclosure processing mistakes, a steadier flow of REO properties could hit the market, putting further downward pressure on home prices that could make for a challenging housing market in the fall and winter.

“The latest readings on consumer confidence paint an ominous picture that at present, consumers are still not ready to risk jumping into the market despite very low mortgage rates and very affordable home prices,” added Villacorta.

Tags: Clear Capital, housing prices, price declines, REO, saturation rate, consumer demand, metropolitan areas

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