According to a survey of 104 economists and real estate experts released last week by Zillow, home prices are expected to fall 0.7% in 2012. This despite largely better-than-expected economic news over the first quarter of 2012 in terms of employment and U.S. economic growth.
To explain the apparent disconnect between housing and the economy Breakout welcomed Stan Humphries, chief economist at Zillow.com.
In the attached clip Humphries describes the downward revision as modest and based largely on the "more dour" than expected Case-Shiller home price review of 2011 which was released at the end of February and available here. The balance of the drop, according to Humphries, could be ascribed to various settlements between banks and the Attorney General leading to more homes coming onto the market via foreclosures.
Humphries is dubious that the days of rapid home price appreciation are going to return this year, next year or, frankly, anytime soon. What we're apt to see is "not a V-shaped recovery at all" but rather continued dripping lower before stabilizing sometime in 2013. What's more, we still have 2 - 4 years of excess supply coming onto the market before resuming the more regular trend in 2016.
For those who came of age in terms of building homes sometime after 2000, in historic terms "the trend is more like 3.5% annualized" as opposed to the low double digits.
After dashing hopes for those wanting to get back into the business of flipping houses, Humphries does offer some positives. The average rate on a 30-year fixed mortgage may have jumped over 4% recently but "affordability is still insanely high" --insane in this case being defined as 30 - 40 year lows.
What's keeping folks on the fence about getting back into the housing market en-mass to take advantage of those rates is what Humphries refers to as "a crisis of confidence." It's not an entirely illogical pessimism based on the fact there are still at least $750billion of houses in which the homeowners have negative equity.
The one big thing Humprhies would look to as a possible candidate for improving the housing situation faster that economists widely expect is jobs. With downticks in unemployment claims coming at a near-weekly basis and the consumer confidence rising in synch, this just may be the year housing surprises to the upside.
But Stan Humphries isn't betting on it.
- Stan Humphries