Home Prices Rise and Fall

The good news is that a home price bottom is expected by year-end, according to one of the nation’s most respected economists. The bad news, at least for current homeowners, is that prices are set to fall another 11 percent before stabilizing.

Since their peak in 2006, home prices have fallen about 25 percent, per a Moody’s Economy.com report issued today, but the end may be near. “Notwithstanding the intensifying economic gloom, the bottom of the housing downturn is within sight for the nation,” said Moody’s chief economist Mark Zandi, in a release. He went on to say, “Presuming we see strong action by policymakers to help support the economy and the housing market, prices will begin to recover by the end of this year.”

Of course, Zandi noted that those same policymakers have yet to “break the downward spiral” of rising job losses, frozen credit markets, and record foreclosures. But with home prices falling to more affordable levels and homebuilder inventory sliding to more appropriate positions, stabilization is within reach.

The report notes that 62 percent of the nation’s 381 metro areas will see double-digit declines by the time the market correction is complete. Declines will exceed 20 percent in about 100 of those areas, with the hardest hit regions of Southeast Florida, California’s Central Valley, and Riverside, CA expected to decline by upwards of 50 percent. On the bright side, 42 markets, mainly in the South, are expected to fall by less than one percent. Note that this is just a bottom, not a recovery.

“Even if the recession ends late this year, as expected, the subsequent recovery looks to be lackluster. Real GDP is not expected to return to its prerecession peak until late 2010, and the nation will not approach a full-employment jobless rate of 5% before President Obama’s term nears its conclusion in 2012,” the release said. “A number of uncertainties in both the housing and economic outlooks remain, and the risks tilt to the downside.”

Million Dollar Home Sales

Million-dollar home sales in the Golden State slipped to their lowest level in five years, according to real estate information provider DataQuick. A total of 24,436 homes sold for a million dollars or more in California last year, a 42.5 percent decline from the 42,506 sold in 2007. It’s the lowest total since 2003 when 20,595 million-dollar homes were sold, and less than half the 50,010 sold in 2006 when real estate was booming.

“Discretionary spending in the housing market has pretty much been on hold the past fifteen months,” said John Walsh, DataQuick president. He went on to say, “The core of last year’s distress was clearly in affordable areas that had a lot of turnover in 2005 and 2006. That distress could migrate up the price ladder if this recession proves nasty for high-income households.”

A big problem was been financing jumbo loans; the number of home purchase mortgages below the old conforming limit of $417,000 increased by 21 percent last year, while the number above decreased a whopping 51 percent. “A lot of home sales in the upper half of the market have been on hold for months, waiting for financing,” Walsh added. That led to nearly a quarter of buyers paying with cash, up from 14 percent in 2007, with those who chose to finance coming in with a median 30 percent payment.

Total California home sales at all price levels increased 2.5 percent last year to 393,703 units, up from 383,748 in 2007. Of the sub-one million dollar home sales, at least 2,052 previously sold for more than $1 million. Interestingly, the 608 sales for more than $5 million last year was a record high, up 7.6 percent from 565 similar sales in 2007.

Roughly three percent of the 8.51 million homes in California are valued at more than $1 million by county assessor offices.