Housing Market Struggles To Reach the True Bottom (Tom Reed Commentary)

The magnitude and breadth of the current housing recession is unprecedented in the post-Great Depression era.

Based upon information obtained through Zillow.com, a leading online real estate marketplace, the consensus average peak-to-trough nationally in home values will be approximately 26 percent to 28 percent.

Currently, the Zillow Home Value Index reflects an average decline of 23 percent. This indicates that home values are expected to decline on average near 5 percent more before the trough is reached.

ZHVI reports the average decline between March 2009 and March 2010 to be 3.8 percent. ZHVI indicated an average home value in the United States of $183,700 as of March 2010.

Locally, Multiple Listing Service records support a decline in the median home price in Benton and Washington counties between the first quarter of 2009 and the first quarter of 2010 of 6.5 percent.

The decline in Benton County was  3.9 percent, while Washington County reflected a decline of 12.9 percent.

The overall decline in the two-county area from the first quarter of 2007 to the first quarter of 2010 was about 21.8 percent.

The median home prices in Benton and Washington counties for the first three months of 2010 were $124,900 and $122,000, respectively, with an overall median price of $123,900.

It should be noted, however, that a large number of residential transactions are not going through the MLS. This obviously impacts median and average home prices reported.

The Zillow report reflects that 23.3 percent of all single-family homes with mortgages in the United States have negative equity.

The Nevada, Florida, and California markets continue to indicate the most serious problems.

In the Las Vegas Metro area it is estimated that 80.6 percent of single-family homes with mortgages have negative equity.

The estimates for the Orlando (Fla.) Metro and Phoenix Metro areas are 74.8 percent and 64.6 percent, respectively.

Negative equity can only be worked down by sales/foreclosures, price appreciation, or paying down mortgage balances. Minimal price appreciation is expected in the near term.

In addition, unemployment nationally is forecasted to remain above 8 percent through the end of 2012.

Negative equity plus unemployment will result in more foreclosures.

As of March 2010, almost 7.3 million mortgages on single-family residential property in the United States were reported to either be in foreclosure or delinquent.

 Some 4.63 percent of mortgages were indicated to be in foreclosure, 4.47 percent 30-90 days delinquent, and 4.91 percent over 90 days delinquent.

Inventory level of for-sale homes in the United States is high.

Progress was made in reducing inventory levels in the fall of 2009 with the tax credit program.

 However, the extension/modification of the program in 2010 does not appear to have worked as well.

In April, it was reported that nearly twice as many homes were added to the market nationally as were sold.

Shadow inventory is not reflected in the inventory level reported. Shadow inventory refers to real estate properties that are either in foreclosure and have not yet been sold or homes that owners are delaying putting on the market until prices improve.

Shadow inventory can create uncertainty for owners as to the best time to sell, and when a local market can expect full recovery. Reported data on housing inventory are typically understated as a result of not including shadow inventory.

While official housing inventory is indicated to be falling, real inventory may not be.

Although the residential market in Northwest Arkansas has been severely impacted over the past 3 to 4 years, it has continued, for the most part, to outperform the nation as a whole. 

(Tom Reed is a partner in Streetsmart NWA of Fayetteville, which produces reports pertaining to the residential, multi-family, and commercial sectors of the real estate market. He may be reached at (479) 575-9100.)