Reports suggest housing market stabilizing

Housing markets appear to have stabilized for the moment, with Case-Shiller price indexes rising for six consecutive months and sales stimulated by federal tax credits and fixed interest rates below 5 percent.

The Case-Shiller index for November, released yesterday, was up 0.2 percent.

A separate report yesterday from the Conference Board said consumer confidence rose in January for the third straight month, reaching its highest in more than a year.

The board's confidence index increased to 55.9 from 53.6 in December. The index for the Middle Atlantic states - Pennsylvania, New Jersey and New York - rose to 55.8 this month from 45.4 in December. Still, the local and national indexes remain well below the level of 80 that reflects a strong economy.

The home-price survey also contains plenty of "buts."

The Standard & Poor's/Case-Shiller indexes are three-month moving averages, so the November readings, released yesterday, reflect transactions completed in September, October, and November, "when demand was heating up in anticipation of the expiration of the [federal] tax credit for first-time home buyers," said economist Patrick Newport of IHS Global Insight.

Historically low interest rates also fueled demand, helping to stabilize prices in the second half of 2009, he said. But he cautioned that the trend would probably not continue because foreclosures are likely to rise.

There is a wave of adjustable rate mortgages on which rates will reset in 2010 and 2011, said economist Kevin Gillen, vice president of Econsult in Philadelphia.

"It was the reset of subprime ARMs in 2007 that was the specific trigger for the market's downturn," Gillen said. "Will this coming wave cause us to double-dip?"

Mortgage rates are low now, but they are likely to rise after the Federal Reserve stops buying mortgage securities at the end of March, Newport said.

Since the subprime meltdown, FHA-insured mortgages have been capturing a greater market share, providing an alternative to tighter lender rules.

But because of concerns over rising defaults and the possibility of another taxpayer bailout, the FHA tightened its rules last week, shutting out a lot of borrowers.

The tax credit sold houses, but demand has tapered off since the first tax credit expired, and the second tax credit, up to now, is having minimal effect, Newport said.

"So, despite the recent positive reports on housing prices, we believe that prices have further to fall - about another 5 percent, he said. The second credit expires in the spring.

It appeared to the housing industry that the tax credit was a panacea, but Gillen suggested that "the true effect of the home-buyer tax credit is still unknown."

"Did it truly halt the market's decline, or just give us a temporary reprieve? We won't know until after its expiration in April," he said.

What the tax credit might have done is pushed people who had been planning to buy in the first half of 2010 into the market in the last quarter of 2009 - meaning that sales will actually decline in 2010 as "payback."

Another major factor is high unemployment.

"People need to feel comfortable about buying a home again," Gillen said. "They not only need to know that they'll be able to support their home's value, but that their neighbors will be able to also."

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