There’s no shortage of depressing numbers about the state of the nation’s housing market. Home prices continue to fall, a key index showed Tuesday. Sales of new and existing homes recently declined. U.S. borrowers owe a collective $700 billion more on their mortgages than their homes are worth. Foreclosures are ramping up again in many places — more than 25,000 Maryland homeowners have received notices this year.
Given those and other dismal statistics, it might seem surprising that experts such as Moody’s Analytics chief economist Mark Zandi are increasingly optimistic.
“I feel as confident as I have since the crash began that it’s now coming to an end,” Zandi said. “With a little luck, I think we’re going to be feeling better about housing six months from now and certainly a year from now. . . . All the fundamentals for housing are much, much better today than at any time since the crash.”
What do Zandi and other housing experts see in the drumbeat of less-than-stellar data that struggling homeowners and a skeptical public do not?
In a word: Progress.
“We’re not off and running, it’s not boom times,” Zandi said, but “there are signs of life.”
Those signs include an improving job market, which means fewer people falling into foreclosure and renewed confidence among potential buyers. Mortgage rates remain near historic lows. Inventories have shrunk to more normal levels. Lenders have shown a willingness to loosen up, if only slightly, on tough credit standards that have remained in place since the boom turned bust more than five years ago.
In addition, the confidence level among U.S. home builders has remained at its highest point since 2007 and sales expectations have continued to climb. Permits for new housing construction have surged to the highest levels in years. Prices have fallen enough to attract investors and individual buyers, some of whom have sparked bidding wars, from Washington state to Washington, D.C.
Dino Pasquali, a real estate agent who works in Northern Virginia and Northwest Washington, has seen those bidding wars as eager buyers encounter shrinking inventories. On Tuesday, he was helping a client try to buy a home in Arlington County that had three offers pending.
“Things are starting to move,” said Pasquali, who attributes the lively market in part to low unemployment and high turnover in the area. “We’re past the worst of it. We definitely hit our bottom, and we’re on our way up.”
Ted Gayer, co-director of economics studies for the Brookings Institution, noted that the housing market has experienced occasional spurts in recent years, leading some experts to predict prematurely that it was on the mend. But he said those short-lived periods happened largely because of artificial factors such as the federal government’s first-time home-buyer tax credit, which expired two years ago. Not so today.
“There’s not substantial government intervention in the way there was before,” he said. “It’s more driven by the market. . . . It looks like the beginning of the recovery.”
The housing outlook might be improving, most analysts and researchers agree. But there’s still a long way to go before the market resembles anything close to normal. “Some markets will have another surge in foreclosures this year,” said Daren Blomquist, vice president at RealtyTrac, a firm that tracks foreclosures across the country. “It’s not going to be all rosy going forward. We’ve got distress in the market that’s going to have to be dealt with.”
Blomquist noted that banks in recent months have resumed foreclosures that they had put on hold while negotiating a $25 billion settlement with the government over shoddy foreclosure practices. The settlement, reached in early February, forces a handful of the nation’s largest banks to change the way they service mortgages and to reduce loan balances for some borrowers. But the banks now feel free to pursue hundreds of thousands of foreclosures in the pipeline.
In the short term, Blomquist said, those foreclosures and the resulting inventory increase could push prices down further, delaying price rebounds until late 2012 or 2013. But he thinks the rebound will come.
“We’re past the absolute worst of it,” Blomquist said. “We’re not going to see as many foreclosures as we have seen in previous years. . . . There will be more and more positive signs in terms of home sales and home prices stabilizing.”
That is, if nothing happens to derail the fragile, fickle recovery. A further spike in gasoline prices, a worsening European debt crisis, a new wave of unemployment, a big jump in mortgage rates, lenders unwilling to lend — any of those factors could put the brakes on recent improvements.
“There’s still a lot of risk,” Zandi said. “I don’t think we can all sit back and smell the flowers. There’s a lot of work left to do.”
More than 11 million homeowners remain “underwater,” meaning they owe more than their houses are worth. Many face imminent foreclosures, and others have struggled to modify or refinance their mortgages, hoping to hold on to their homes until they find firmer footing. For them, recovery still feels miles away.
But many professionals in the housing industry see glimmers of better days ahead.
“I’ve seen the market improve just in the last 30 days,” said Ann Pell, a veteran real estate agent who works primarily in Prince George’s and Anne Arundel counties. “I have more listings. More people are interested. Buyers are coming out like it’s a normal spring. There’s light at the end of the tunnel.”