Evidence That End of Housing Price Collapse Is Not Far Off

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It is still too early to call a bottom in housing. However, it is not too early to begin looking for an end to the collapse in housing prices.

And we are seeing evidence that the end is not far off. As the Wall Street Journal notes this (Thursday) morning, bidding wars are emerging for foreclosed properties.

Falling home prices are starting to ignite bidding wars in a few parts of the U.S. as first-time buyers compete with investors for the same foreclosed properties.

In most of the nation, the supply of unsold homes continues to swamp demand. Home prices in many markets continue to fall, and foreclosures, which slowed in late 2008 as mortgage companies delayed taking action against delinquent borrowers, are picking up again.

But real-estate brokers say multiple offers on certain homes have recently become more common in parts of California and Arizona and the Washington, D.C., and Minneapolis-St. Paul metropolitan areas.

January saw a 1% rise in home prices. This is the first time since 2007 when home prices have risen two months in a row. Not something to get all giddy over of course, but a slight improvement nonetheless.

The Wall Street Journal's quarterly survey of 28 major metro areas shows that there is still a glut of homes available in most markets. But the glut has shrunk, and some areas are running into shortages of moderately priced homes in middle-class neighborhoods. ...

Across the nation, there is still a tug of war between bullish and bearish forces. On the bullish side, falling prices and the lowest mortgage rates since the 1950s have made homes far more affordable, luring shoppers like Ms. Leonard, who has been renting for years. Adding to the attraction, the U.S. government is offering tax credits for certain people who buy homes before Dec. 1. The credit -- equal to 10% of the purchase price, up to a maximum of $8,000 -- is available to buyers who haven't owned any other primary residence in the U.S. during the three years before the date of purchase.

On the bearish side, rising unemployment has knocked many people out of the housing market and made those who still have jobs skittish. Even those with secure jobs who want to buy can't always get loans on attractive terms because of today's tightened credit standards.

Critics will contend that the sales merely represent banks blowing out their inventories and the sales do not represent underlying health of the economy.

That misses the point. Before the economy can really start to improve, banks have to get rid of their inventory. Clearing out their inventory allows banks to free up capital which then can be used to lend to more profitable endeavors. The process also facilitates price discovery where home prices clear. Such activities are building blocks for the eventual recovery.

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