The Case Shiller numbers were released this week and they showed housing prices surging, most prominently in Northern California. To the right is an updated graph of the Case Shiller Index using a home that was hypothetically valued at $600,000 at the peak in 2006.
In June this home increased in value to $342,692 from a low in March of $323,588. The futures market at the CME show housing prices increasing again in the next three months with our home peaking at $351,697 in September. From there it trials off through the beginning of next year but no where near the drastic declines predicted a few months back (i.e. below $300,000 by year-end).
So is this the bottom? Clearly the surge is something more than seasonality, something just last month I thought was mostly responsible for the jump in housing prices. Other factors include low interest rates (courtesy of the Federal Reserve), low down payment FHA mortgages (courtesy of government), tax credits (via both California and the federal government), and what seems to be a near panic to buy homes among prospective buyers. In some ways it is as if we are right back in bubble mentality.
Here are some comments I've received that back up this last point.
First from a prospective buyer with their finances in order, looking for a place to settle down for the long haul. Look at what they are up against:
...We're looking in Healdsburg, Sonoma, and Napa. We were going to make our purchase in the Winter, but a few places caught our attention.
The problem was actually getting an opportunity to make an offer. The listing agents say they are being bombarded with phone calls on the properties and other brokers can't be bothered to even put in the offer. One agent said "Please don't ask me to put in an offer on [address withheld]. You're never going to get it. They're getting like 50 offers." That was the only Redfin agent that actually returned our call. We tried traditional agents as well.
...Right now, it seems nearly impossible to even put in an offer, which makes me wonder if buying an REO is all that realistic.
When Redfin, which prides itself on making online offers, won't even place your offer, I begin to wonder.
And from someone involved with Sonoma County REO's:
I work for the most successful REO agent in Sonoma County. I have seen 3 major trends emerge in the last 60 days. 1. REO's have almost completely dried up. 2. Contingent Short Sales (Most of which never sell) are dominating the market and are driving up prices in some areas by tying up most of the active listings. 3. We are doing pre-foreclosure and REO BPO's on a very large number of homes valued from $400k to $1 Mill+.
Again, right now the system is getting propped up by the government (now responsible for over 90% of new mortgages) and banks who don't want to recognize losses on their balance sheets. This can't go on forever. Interest rates will soon be heading up and FHA loans with only a 3.5% down payment will eventually end (once taxpayers are forced to pick up the bill for losses on FHA loans expect standards to go up). And of course, more foreclosures are coming.
So have we hit bottom? Absolutely not.
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