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Real Estate Market Commentary - August 2012
by Peter L. Zachary, MAI, MRICS

August may be a time for happier news on the housing front. Early in the month on August 8, 2012 the New York Times had an article posted on its website titled “Twin Reports Stoke Cautious Optimism for Rebound in The Housing Market” it stated: “In the latest sign that the worst might be over for the battered American housing market, the two government-controlled mortgage finance giants, Fannie Mae and Freddie Mac, this week reported some of their best quarterly results since the real estate collapse.

On Wednesday, Fannie Mae posted second-quarter net income of $5.1 billion. That is up from $2.7 billion in the first quarter of this year and an improvement from a net loss of $2.9 billion in the second quarter of last year. Fannie requested no additional money from the Treasury and said it would pay a $2.9 billion dividend to taxpayers.

On Tuesday, its brother organization, Freddie Mac, announced second-quarter net income of $3 billion, up from $577 million in the first quarter and a net loss of $2.1 billion in the year-ago second quarter. It also requested no additional federal aid and said it would pay a $1.8 billion dividend to the federal government.“We’ve have had two very good quarters,” Timothy J. Mayopoulos, who became Fannie Mae’s chief executive in June, said in an interview. “In the longer term, we’re encouraged by what we see, but it’s going to be driven by factors that are bigger than we are,” including unemployment and consumer confidence.

The mortgage giants have moved into the black as American home prices have increased, delinquency rates have continued to fall and what analysts have cautiously described as a housing recovery has begun to take hold.” It also stated: “At the halfway point, 2012 is increasingly looking like the year that the residential housing market may have turned the corner,” Anand K. Nallathambi, CoreLogic’s president, said in a statement. “While first-half gains have given way to second-half declines over the past three years, we see encouraging signs that modest price gains are supportable across the country in the second half of 2012.”

Both mortgage financiers said that loans made during the housing bubble — loans on which homeowners were more likely to default — were becoming smaller proportions of their portfolios. That means that the two mortgage giants expect smaller losses on bad loans and better earnings on good ones. Freddie said loans that originated from 2005 to 2008 accounted for about a quarter of their portfolio of single-family mortgages, and loans originated after 2008 were more than half.

Housing experts caution that the increase in home prices might not augur a housing turnaround — and that further losses might still lie ahead for the Washington-based mortgage financiers. Though prices increased in June, home sales declined by 5.6 percent, the largest drop in 16 months, according to Capital Economics. The housing recovery is held back by broader economic sluggishness, analysts said. Unemployment remains stuck above 8 percent. Wage growth is sluggish. Many American households are saddled with debt. Consumer confidence is low. That means relatively few families have the means or the desire to invest in a new house."

However the article concluded by stating: “It’s too early to declare a national housing recovery,” said Mr. Mayopoulos. “The second half of the year is not likely to be as strong as the first half of the year. A big part of results we’re seeing came from a significant increase in home prices — and it is not clear to us that we’ll see further sustained increase in home prices for the next few quarters.”It may very well too soon to “declare a housing recovery”, but August continued to be the month of good news. Another New York Times article “Hard-Hit Cities Show a Housing Rebound” posted on their website on August 28, 2012 stated: “Even some of the cities that suffered the most in the housing bust are showing signs of improvement, with prices beginning to recover in places like Miami, Atlanta and Detroit, according to the latest housing data.

In fact, there is improvement across the board, with home prices nationally inching up over their levels a year ago for the first time since 2010, when sales were helped by a temporary tax credit for home buyers. Home prices are still down almost a third from their peak in 2006, but most recent reports are pointing to a slow recovery and increased optimism that could encourage potential buyers to take the plunge.

In Atlanta, the city with the biggest one-year decline in home prices, the market perked up by about 4 percent in May and again in June, according to nonseasonally adjusted numbers. Detroit prices increased 6 percent from May to June, while in Miami, prices rose by 1.4 percent in May and 1.6 percent in June. A surge in prices is to be expected in June, a time when the market ordinarily heats up, but analysts called these increases particularly strong.

Housing went from being a huge engine of growth to a drag on the economy as inventories swelled, foreclosures mounted and prices crashed. More recently, economists have pointed to a slow turnaround, saying it is once again contributing to the nation’s economic output. Some of the strongest showings could be seen in many cities in the South and West that were among those hit hardest. When home prices were rising, places like Phoenix and Las Vegas were growing rapidly and real estate was a major part the local economy. Homes there lost more than half their value, according to Case-Shiller data. But while Las Vegas has shown little movement, recovering 4.5 percent from its trough, Phoenix has rebounded by 14 percent, San Francisco by 18 percent and Atlanta by 11 percent.

Mark Zandi, chief economist for Moody’s Analytics, said the Phoenix economy is more diverse than Las Vegas’s, so the job market started to recover sooner and investors have been more eager to buy. “That said,” he added, “I don’t think the Vegas economy and housing market are too far behind.” If that wasn’t already enough good news, an additional article from August 29, 2012 on the New York Times website titled “Housing Market Improvements Lessen Consumer Distress” shared that the improvements within the housing market is having a direct positive effect on consumers. It stated: “Improvement in the nation’s housing markets has helped ease consumer financial woes, according to a quarterly report from a large credit counseling agency.For the first time in nearly four years, the Consumer Distress Index, published by the nonprofit agency CredAbility, showed that consumers nationally were inching their way out of financial distress.

Housing was the main driver of consumers’ improved financial condition this quarter, according to Mark Cole, the agency’s executive vice president and chief operating officer. Late payments on mortgages reached a three-year low, and housing costs dropped as many homeowners cut their payments by refinancing. The average household also kept a tighter rein on its budget, which helped drive the savings rate to a one-year high in June. Net worth also ticked up. Overall it seems the housing market has been making progress throughout the month of August. Who knows what else is in store, maybe more good news. I’ll keep my fingers crossed.

More next month.

Read previous Real Estate & Housing Market News.

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