The ever-changing housing market continues this week with an update on interest rates, negative equity from Zillow, and the March Home Price Index from CoreLogic.
Interest Rates Continue Short Term Slide
Mortgage rates declined for the week ending May 12, 2011. Freddie Mac reported the 30-year fixed mortgage rate dropped to 4.63% from 4.71% a week ago. The 15-year fixed rate declined to 3.82% from 3.89% from the prior week.
Instability in Middle East and uncertainty in the Eurozone caused a flight to the safety of US Treasuries. The demand of US Treasuries caused rates to drop. Rates have been fluctuating wildly over the first few months of the year leaving many to wonder which direction they are headed long term. I still think we are headed for higher rates over the long term. How long? We’re likely to be higher by year end. Prices are starting to rise and the Fed has expressed they’re prepared to step in and raise rates.
CoreLogic: Double-Dip Here
CoreLogic released its March Home Price Index, showing that priced declined 1.5% for the month. Year-over-year, home prices declined 7.5% nationally when distressed sales are included. Appreciation is occurring in some markets; West Virginia (+7.7%), North Dakota (+4.1%), New York (+3.5%), Alaska (+2.4%), and Maine (+0.4%). Big declines were felt in Idaho (-13.3%), Arizona (-12.3%), Michigan (-11.9%), Florida (-10.6%), and Illinois (-10.6%). According to Corelogic, prices are 4.6% below their 2009 lows.
Home price declines are slightly inflated as the year-over-year results now compare data from sales during the home buyer tax credit last year. Declines are still being felt throughout many markets in the US, but some markets are seeing price growth. I still feel confident we’ll see prices stabilize by the end of the year with many markets showing upside as inventories dwindle.
28.4% of Homes in Negative Equity
Zillow released its Real Estate Market Report for the first quarter of 2011. In this report, Zillow highlights several items including; 28.4% of all homes are now in negative equity situations. Also Zillow reported that home prices fell faster in the first quarter of 2011 (-3%) than in any quarter since 2008. In the report, Zillow says home prices are now 29.5% off their peak in June 2006.
Zillow is forecasting that home values will not reach their bottom in 2011 and believes the decline is accelerating. With regards to negative equity Zillow reports the following cities have more than 50% of homes in negative equity situations; Atlanta (55.7%), Phoenix (68.4%), Riverside (50.7%), Tampa (59.8%), and Sacramento (51.2%).
Rates continue to be favorable despite a shift in the fundamentals of the economy. Signs are pointing to rising inflation, a looming debt crisis, leading to a rise in interest rates. Investors in this real estate market should pay attention to the continued low prices, declining vacancy, and negative equity situations. This combination means the opportunity isn’t going anywhere over the short run. For those readers who are active, you’ve already noticed the market is changing.
Someone at my firm offered on a property in South Florida the other day. There were 19 cash offers on the property within a couple days of it hitting the market. In the same area 6 months ago we were one of few interested parties; something to think about.