Many housing pundits predict that home prices will fall steeply again once new waves of (currently pent-up) foreclosures finally wash through the market. Tom Lawler, a housing economist in Leesburg, Va., who is famous for bad puns and bucking the consensus, says it is a “much better than even bet” that we already have seen the low for this cycle in terms of the S&P/Case-Shiller 20-city composite index.
On Tuesday, Standard & Poor’s reported that the 20-city index for July was 144.23 (based on a January 2000 level of 100). That was up 1.6% from a month earlier and 3.6% from the low it hit in April.
In his daily commentary Tuesday, Mr. Lawler said the index may decline a bit in the months ahead. But he thinks it is likely to stay above the April low, which marked a plunge of about 32% from the peak in the second quarter of 2006.
True, he says, “rising delinquency rates and rising inventories of loans in foreclosure portend an ultimate increase in ‘distressed’ home sales” and that could lead to another surge in sales of foreclosed homes next spring.
However, Mr. Lawler says, “consumer confidence has improved, and consumers are more aware of widespread mortgage credit availability to borrowers willing to go the ‘full monty’ on documentation and underwriting. In addition, home prices in much of the country have fallen back to levels more consistent with historical relationships to area incomes and rents, suggesting the potential for a decent-sized increase in ‘normal’ housing demand. If early indications that the economy may be bottoming prove to be correct, then it is actually likely that the cyclical lows in many metro home price indexes have already been made.”
Of course, the index is an average across 20 cities. Even if it has already bottomed out, that doesn’t mean prices have reached the floor everywhere. Areas with heavy foreclosure concentrations remain especially vulnerable. And if the economy goes into another swoon, all bets are off.
