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Home Prices Stabilizing, Say New Reports

by Peter G. Miller
November 11th, 2009

In what should be good news for homeowners in general and the FHA reserve fund in particular, Zillow is reporting that home prices may be stabilizing.

“The percent of American single-family homes with mortgages in negative equity(1) fell to 21 percent in the third quarter, down from 23 percent in the second, as home values stabilized in the short term and more underwater homeowners lost their homes to foreclosure, according to the third quarter Zillow Real Estate Market Reports.

The idea is not so much that home prices are rising but rather than declines are becoming less severe.

“Year-over-year home values in the United States declined for the 11th consecutive quarter, falling 6.9 percent to a Zillow Home Value Index of $190,400,” says the company. “However, the rate of year-over-year decline shrank for the third quarter in a row, meaning home values did not decline as dramatically year-over-year in the third quarter as they did in the second or the first.”

In addition to Zillow, the S&P/Case-Shiller report reaches the same conclusion:

Data through August 2009, says S&P/Case-Shiller, shows that “approximately seven months of improved readings in these statistics, beginning in early 2009.”

“While many of the markets remain down versus this time last year, the relative rate of decline has shown some real improvement,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “California, in particular, has seen some real positive prints in recent months. We see this general trend whether you look at the as-reported data or the seasonally adjusted figures.”

Looking Ahead

It’s not possible — or wise — to suggest that our long national real estate nightmare is coming to an end, but before you can have rising prices you first have to stop declining values.

For FHA mortgage borrowers — and for the FHA itself — the idea of marketplace stabilization is enormously important.

The one sure way to get buyers back into the marketplace is to have rising prices. Everyone likes a winner and no one likes to be left behind or left out. In other words, there’s a marketplace psychology at work when prices rise or fall.

For the FHA, more equity translates into lower claims against its reserves. Foreclosure is not actually a problem for insurance programs IF the value of the property is larger than the outstanding mortgage balance and foreclosure costs. Thus, for the FHA, the more equity the better.

Looking toward the future, we don’t know if today’s relatively good news will continue. The rising rate of unemployment is worrisome and destabilizing — people without incomes cannot buy homes nor long maintain their mortgage payments. The direct result of higher unemployment levels is a larger number of foreclosures — and big foreclosure inventories push down local home values.

Still — under the theory that any port in a storm is good news — we now have some positive data. It’s not much, but it’s better than the alternative.

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