The latest research white paper from First American CoreLogic has run simulations for the housing market under two scenarios: (1) the latest federal tax credit program for home purchase (ends Friday) is the last and other government programs, aimed at slowing foreclosure and keeping mortgage rates low, end; and (2) another tax credit program follows, along with continuation of housing progams such as HAMP, HARF and HAFA (see notes at end of article) as well as Fed support for the mortgage securitization market.
Here is a summary of their conclusions:
1. During the first thirteen months of the Federal Housing Stimulus programs, home sales and home prices stabilized.
2. It is likely that the collective set of federal programs, including the home buyer tax credit, Federal Reserve MBS purchases, and Federal foreclosure prevention programs (HAMP, HARP, HAFA), contributed to the housing market stabilization.
3. Under a simulation scenario of extended Federal support, home prices are expected to increase year-over-year by more than 4 percent in February 2011.
4. Under a simulation scenario of Federal support ending in April 2010, home prices are expected to decline by more than 4 percent year-over-year in February 2011.
The white paper contains the following graph showing the two simulations:
In the white paper the variation of simulated results is examined across multiple markets. There is a wide variation. The strongest markets under both simulatuions are the Boston-Quincy MA area ( up 7% to 9% February 2010 to February 2011)and the weakest are Detroit-Livonia-Dearborn MI area (down 13% to 17%). The white paper has a large graphic covering all markets.
FACL (First American CoreLogic) states that the federal programs have been effective in slowing the housing slide. However, they also say the programs have had a diminishing effect as they have continued. This is consistent with the opinion that a primary affect if the tax credit is one of selling ahead. Some of the increased sales in the past 8-9 months have been stolen from the second half of 2010, and possibly 2011.
The implication is that another tax credit incentive program would produce marginal effects. This view is apparently shared by the real estate industry. The NAR (National Association of Realtors) has NOT asked for another tax credit program. They lobbied vigorously for the first two programs.
The HAMP, HARP and HAFA programs are widely considered to have had an effect only at the margins. There are small numbers of participants and some of them have still proceded to default even after modifications and refinancing. These programs will run for as long as 2+ more years and presumably are included in the red simulation curve above. Either way, the effect would probably be minimal.
The FACL simulation with no additional federal stimulus projects that prices will reach a level about 9% below December 2009 at the low point in 2010. This compares with the most probable decline of 11% projected by this author recently using an entirley different analysis.
Calculated Risk has a different graph of the FACL data:
For a larger image click here.
This graph shows the small magnitude of the quantities we are discussing year on the historical scale of the housing bubble. The projected lows for 2010 (whether 9% or 11% below December, 2009) are not much below the early 2009 lows. One thing that is clear on this graph is the bubble has not yet deflated. The historical trend line from 1976 to the late 1990s (not shown), if extended to the current date would be near $120,000. This is about 15% below December, 2009.
It is not clear from the white paper how the shadow inventory of potential foreclosures have been accounted for in the simulation. My most recent estimates are that between 1.7 million and 2.4 million foreclosed and short sale homes could be on the market in 2010. This is significantly greater than the 1.36 million distressed sales in 2009. If FACL has estimated the impact of distressed sales to be less than my estimates, that could account for the difference between their 9% and my 11%.
Notes:
HAMP - Home Affordability Modification Program
HARP - Home Affordable Refinance Program
HAFA - Home Affordable Foreclosure Alternatives
Disclosure: No stocks mentioned.
