In recent months, most economists have come to believe that U.S. house prices have finally bottomed after a horrible five years of declines.
Most of the major house-price indices, including the monthly Case-Shiller report, have turned higher. And yesterday's Existing Home Sales report showed an increase in the median house price of a startling and encouraging 11% year over year.
In the past couple of years, there have been periods in which house prices have risen temporarily, only to soon begin falling again. These "head fakes" caused many analysts and real-estate agents to prematurely call the bottom. And they have likely left some home buyers and investors sitting on losses that they didn't expect.
One analyst, Keith Jurow, who writes about the housing market for finance site Minyanville, thinks that the current price rebound is just yet another head fake. Jurow thinks the bottom for house prices is "nowhere in sight." And he thinks that homeowners in some markets like New York, which haven't experienced price declines that are as sharp as in some other markets, will get particularly clobbered in the next few years.
Jurow bases his conclusion primarily on concerns about so-called "shadow inventory"--a huge number of houses that will eventually be on the market but aren't counted in current inventory figures. For example, a large number of households are behind on their mortgages or have stopped paying their mortgages, Jurow says, but the banks have yet to foreclose. When banks are finally forced to foreclose, Jurow says, and these houses hit the market, they will cause significant additional price declines. Additionally, some homeowners who want to sell are waiting for price increases. When they finally give up and put their houses on the market, Jurow says, this will add additional supply.
Bearish housing analysts have pointed to shadow inventory as a concern for several years. Other respected analysts, like Bill McBride at Calculated Risk, acknowledge this issue but also argue that concerns about it are overblown. McBride believes that that shadow inventory is working its way through the system and that the housing market is slowly returning to normal. After many years of expecting additional prices, McBride called the bottom in house prices earlier this year.
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