The S&P/ Case-Shiller Home Price Indices, came out with a new report last week which paints a grim picture of the housing market. This index is the most watched measure of the residential housing market in the United States. It tracks the changes in value of residential real estate both nationally as well as in 20 metropolitan regions. Data through March 2011, showed that the index hit a new recession low with a 5.1 percent decline versus the first quarter of 2010. Furthermore, the indexes for 19 of the 20 major cities were down compared to March 2010. Washington was the only city that increased on both a monthly (+1.1 percent) and annual (+4.3 percent) basis. The month over month numbers don’t look any better as 11 cities have posted at least 8 consecutive months of negative returns.
David M. Blitzer, Chairman of the Index Committee at S&P/ Case-Shiller Home Price Indices, doesn’t see a turnaround anytime soon. “Home prices continue on their downward spiral with no relief in sight.” He notes that much of the rise in home sales last year was due to the first time home buyer tax credit. “Excluding the results of that policy, there has been no recovery or even stabilization in home prices during or after the recent recession”, Blitzer says.
Large drops in home prices and interest rates have left homes in many places more affordable than they have been in decades. Tight lending standards, however, haven’t allowed first time buyers to take advantage of this according to a new study called The State of the Nation’s Housing, 2011 by the Joint Center for Housing Studies of Harvard University. The report which was released this week goes on to say that lending standards may get even tighter as lawmakers in Washington are still discussing the proposed Qualified Residential Mortgage. One of the elements of this new provision which causes major concern is the required 20% minimum down payment. This will pose a major hurdle for potential buyers and unnecessarily restrict the access to mortgages for low and moderate- income households.
One bright spot noted in The State of the Nation’s Housing, 2011 report was the emergence of the rental market. Renters who have put off home buying or those not able to access credit are waiting on the sidelines. As home ownership continues to decline there will be pressure on the rental market, pushing rents up and encouraging multi-family construction. In the near term, it will likely be this market to rally the housing recovery.
S&P/ Case-Shiller Home Price Indices, National Home Prices Hit New Low in 2011 Q1, Standard & Poor’s
Harvard University, The State of the Nation’s Housing, 2011, Joint Center for Housing Studies