Are U.S. Home Prices Nearing a Bottom?


If you've been bullish on U.S. home prices, the trend is not your friend. Home prices in 20 major cities tracked by the S&P/Case-Shiller index declined 4 percent in December 2011 compared to the previous year.

Nineteen of the 20 cities experienced year-over-year declines, with Atlanta's 12.8 percent fall being the worst.

Since 2006, nationwide home prices have swooned around 33 percent. So much for the formerly popular fairytale that owning a home is the best investment a person can make.

Record low borrowing rates (NYSEArca: MBB - News) have done little to jumpstart the depressed housing market. A 30-year fixed mortgage rate is just 4.03 percent, while 15-year rates are at 3.35 percent, but it's done little to encourage homebuyers. This is especially true for new home sales, which have been uglier than Frankenstein. Despite that, homebuilding stocks (NYSEArca: XHB - News) have rocketed ahead by 16.78 percent year-to-date.  

The curtailed backlog of foreclosed homes that have yet to hit the market is a big problem for the housing market.  

In 2011, foreclosure activity dropped significantly because of the banking industry's voluntary moratorium due to its robo-signing scandal along with investigations into mortgage lending practices by state attorneys.

Early this month, the nation's five largest banks (NYSEArca: KBE - News) agreed to a $25 billion settlement to end further investigations into abusive foreclosure practices.

Meanwhile, at the high end of the housing market, lenders have been reluctant to kick out non-paying mortgage borrowers. As a result, delinquent borrowers living in higher valued homes are being allowed to stay in their homes longer. According to data compiled by the Wall Street Journal, the average foreclosure period is 2.19 years for individuals with a $1 million mortgage or larger, compared to 1.64 years for people with a mortgage less than $250,000.

The discrepancy in home foreclosures between delinquent jumbo mortgages and delinquent smaller mortgages needs to be fixed.  Keeping people in luxury homes they can't afford has created a culture of quasi-rich free loaders. And more importantly, it's prolonging the housing recovery, which cannot officially happen until the overhang in inventory is cleaned up.


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