Posted by Chris on 30. December 2008 03:27
Unfortunately not. Today Standard & Poors released its S&P/Case-Shiller Home Price Index results for October 2008, which showed home prices continued to fall in October for the 28th consecutive month. According to the index, which is comprised of 20 metropolitan cities, home prices dropped 18% from a year ago. Rounding out the top five (or bottom five depending on your perspective) were Phoenix (-32.7%), Las Vegas (-31.7%), San Francisco (-31.0%), Miami (-29.0%) and Los Angeles (-27.9%). Several areas did record single digit decreases like Dallas, Denver, Boston and New York.
Why?
We all know that foreclosure rates are going through the roof. By the time a bank has foreclosed on a property they have already charged off or recorded the entire loss of their loan. Therefore, they are carrying the value of the foreclosed asset at zero. Hence, there is little incentive to get top dollar or even market value for the home. In fact once a Bank owns a property their goal is to get rid of it as quickly as possible. Speed not price! In addition, public and private banks alike have to report their statement of financial condition to the FDIC quarterly. This makes banks highly motivated to liquidate any bank owned property prior to quarter end. If you are interested in viewing your Bank’s financial statements, you can view their quarterly Call Report at the FDIC's website.
When will it turn around?
Who knows right? But thanks to aggressive loan modifications by lenders and recently enacted state legislation, foreclosure rates have begun to decline. According to RealtyTrac.com, there were 259,085 foreclosure filings, including default notices, auction notices and repossessions in November. This represented a decline of 7% from October. The bad news is that it was still a 28% increase from a year ago. As we would expect, there exists a regional correlation with the S&P/Case-Shiller Home Price Index. Ranked by the number of foreclosure filings per household, Nevada, Florida, Arizona and California ranked 1 through 4, respectively. The numbers are staggering, one out of every 76 households in Nevada have a foreclosure filing of some sort.
Foreclosures are the key!
The foreclosure filing data should be a leading indicator for home prices. If the number of filings continues to decrease we should start to see some stabilization in home prices. In fact, the two cities that reported the lowest % decrease in home prices, Dallas and Charlotte, are in states that both reported about a 30% decrease in foreclosure filings, not over the last month, but over the last year. I also expect that we will see provisions included in an Obama Administration stimulus package that will include foreclosure protections for homeowners. This may help expedite the stabilization and recovery of the residential housing market. Unfortunately, we can only hope that the commercial real estate market does not deteriorate like the residential market has over the last year or we could see banks in a similar situation on the commercial side. Time will tell.