Bargains belie lingering housing fears

Bargains belie lingering housing fears
By Saskia Scholtes in New York
Copyright The Financial Times Limited 2009
Published: April 21 2009 22:57 | Last updated: April 21 2009 22:57
http://www.ft.com/cms/s/0/28dd238c-2ebe-11de-b7d3-00144feabdc0.html


Andi Coval has been renting for three years. When she moved to San Francisco for work in 2006, she sold her house in Sacramento at a $200,000 profit and put the money in the bank.

“My company had just been bought and I wasn’t confident about my job stability. It felt too risky to buy a house, so I rented,” she said.

The decision allowed her to ride out much of the housing downturn unscathed. But last week, Ms Coval and her two cats moved into a fully renovated three-bedroom, two-bathroom house in Pleasant Hill, a popular suburb of San Francisco. She paid $585,000 (€450,000, £400,000) for the house with a 30 per cent down payment.

“Around August last year I felt intuitively that the real estate crisis was bottoming out,” she said. “I had no pressure to move, but I started looking and I knew I didn’t have to compromise. I really feel like I got value.”

Ms Coval saw mortgage rates at record lows and national home prices down more than 30 per cent from their 2005 peak, and decided to take the plunge – knowing she could get a bargain.

Other prospective homebuyers have made the same calculation. In February, national sales of existing and new homes rose by 5.1 per cent and 4.7 per cent respectively, while housing starts and permits were also higher. As some of the first rays of light in a hitherto gloomy housing picture, the data prompted fierce debate over whether the market was beginning to recover.

In March, starts and permits fell once more, while existing and new home sales data for the month are expected on Thursday and on Friday. House prices, meanwhile, have continued their relentless decline. The problem, economists say, is that any attempt to call a bottom to the national housing market is like trying to give a single forecast for the whole country’s weather: the US average can hide some very significant regional differences, with separate states at different stages of the house-price cycle.

Peter Morici, professor of economics at the University of Maryland, said: “In some markets we may have hit bottom, but others are still suffering from oversupply, or they are in areas with depressed industries and population shrinkage, such as Detroit.”

In the home of the troubled motor industry, prices have suffered badly as people have left to seek work. Economists say a price recovery may be beyond its reach, with no new buyers coming on to the market.

For an early indicator of how recovery might proceed, it is tempting to look at California – one of the first and hardest-hit states in the mortgage crisis. With prices down 40 per cent from their peak, affordability has dramatically improved in many areas, attracting buyers such as Ms Coval in search of bargains.

Sales of existing single-family homes in February surged by 83 per cent from a year earlier, according to the California Association of Realtors. This helped to cut inventory. At the current rate of sales, it would take 6.5 months to clear the existing inventory, compared with 15.3 months a year ago,

“Certainly, a number of people in California have been buying at rock-bottom home prices, thinking this is as low as they will go,” said Jay Brinkmann, chief economist at the Mortgage Bankers’ Association.

He stressed, however, that the jump in sales was from a low base and in the peak of the buying season. Meanwhile, about 58 per cent of existing California house sales in February involved foreclosed homes, compared with 33 per cent a year earlier. This means that even as sales rise, prices continue to fall as more distressed inventory comes on to the market.

Unemployment in California remains a wild card for the housing market, with the jobless rate at 10.9 per cent in the state. “It’s increasingly the employment story that’s going to be driving the housing market,” said Mr Brinkmann. “This could temper the beginnings of any recovery in California and accelerate problems in other areas.”

In New York, for example, Wall Street job losses could trigger a downturn in Manhattan, which has been resilient to the housing slump.

So while “green shoots” may be starting to sprout in California, recovery for many housing markets may have to wait for next spring or beyond.

This is the first in a series on the US housing market