There are a number of forward looking indexes that try to predict the future of real estate values. They all fail. The only way to have certanty about the housing market is to look backwards, which is exactly what we have done.
Every economist has been trying to call the bottom of the market – or that point at which the foreclosure debachle that put pressure on housing prices changed from getting worse to getting better. We now have the answer. It was in September 2011. You may not know this, but every foreclosure in s amatter of public record. Banks file the foreclosure notices with local government. CoreLogic is a company that collects that data from local government and leverages it to track market activity. They also use that data to provide something called an AVM, or Automated Value Model. This AVM is the tool that banks use to monitor the debt to value ratio on all current loans and on loan approvals. As we all know, home prices are largely dictated on the loan value of the mortgage. It does not matter how much a consumer wants to pay for a home, it only matters if the bank will lend against the selling price.
Below are two charts. The first shows negative equity in the San Luis Obispo region. Up until December 2011, about 20% of all homes in the area were distressed. That means that the mortgage amount owed was greater than the estimated selling price if the home were sold that day. You may have heard phrases like “1 in 5 homes are underwater.” As of June 2012, the number of homes underwater had dropped by 25%, down into the 16% range. As home prices climb, underwater homes decline. We can tell you that home prices went up month over month throughout the summer and fall. Century 21 Hometown Realty was selling around 300 homes per month, and homes on the market for any length of time saw price increases rather than price cuts. Buyer demand for housing is strong and we are getting multiple offers on listings for the first time in many years.
The second chart below shows the reversal in foreclosures. From October 2011 forward, the number of foreclosure properties have gone down each month. This correlates to the negative equity chart.
