Double dip price crash hammers US housing market


The double dip has arrived. US house prices suffered their biggest quarterly fall since the collapse of Lehman Brothers in the first three months of this year, according to the latest statistics, with average values slumping 3%.



The fall has pushed the number of us homeowners in negative equity to 28% from 22% a year earlier, according to new research from the US property listings site Zillow.



Average prices are now 33% below the peak they reached in July 2006, according to the S&P/Case-Schiller Index, and repossessed homes now account for 30% to 40% pof all home sales in the USA … which is in turn driving prices lower.



"Home value declines are currently equal to those we experienced during the darkest days of the housing recession," Stan Humphries, chief economist at Zillow told OPP. "Rising foreclosures and high negative equity rates make it almost certain that we won't see a bottom in home values until 2012 or later."



The picture was the same with another report from Clear Capital this week which showed that US home prices across the country are now lower than what was previously thought to have been their nadir in March 2009.



According to Clear Capital, US home prices are now 0.7% lower than in March 2009. And the report goes on to add that prices fell 4.9% over the first quarter, 5% year on year, and 11.4% compared to the previous 9 month period. It also says that prices are falling faster now than in 2008, and that all of the main US Metropolitan Statistical Areas saw declines through April this year.



“With more than one-third of national home sales being REO (bank owned), market prices are being weighed down as many markets have not regained enough footing to withstand the strain of the high proportion of REO sales,” Clear Capital’s Alex Villacorta told OPP.



“We have definitely seen a number of both short sales and foreclosed properties along the West Side here, and they have definitely taken a hit,” says Los Angeles Realtor Bill Kerbox



According to the data the saturation in bank owned properties, which is at 34% nationally according to Clear Capital fuelled a 2.4% quarterly contraction in Los Angeles, a market which was previously thought to be in a firm recovery.



Unlike last year, there is no federal home buyer tax credit policy to stimulate the markets. Zillow.com doesn’t think that the U.S. housing market will bottom until 2012.



The position could not be more different in Canada. According to the Canadian Real Estate Association, not a single Canadian province will experience a decline in home prices in 2011.



Housing prices in Canada have increased every year since 1998, except for 2008 when prices fell by less than 1%.



According to housing analysts at Bank of America, there are four key reasons for the healthier Canadian sector:



“1. We find government guaranteed mortgage insurance mitigates risk to financial institutions, unlike the US where financial institutions were clearly over exposed and the solvency of insurance providers has been questionable. 75% of mortgages in Canada are fully insured with Government guarantees and all mortgages with an LTV higher than 80% must be insured by regulated lenders.



2. Legal recourse laws reduce the risk of households walking away from their mortgage and implicitly improve lending quality, unlike in the US where reports of abandoned vacant homes were and remain rampant. By our estimation around 90% of mortgages are full recourse in Canada, creating a more lender-friendly environment.



3. About 30% of the Canadian mortgage funding market has a federal government guarantee, which reduces the risk of a US style funding freeze. Indeed, during the height of the credit crisis, the Government of Canada initiated a very effective Insured Mortgage Purchase Program which essentially kept the Canadian mortgage market functioning.



4. Canadians have historically held lower leverage ratios than their US counter parts and tend to gravitate to more conservative mortgage options. Canadian household balance sheets have deteriorated and have been treading into more risky areas like variable rate mortgages, but sub prime lending remains a virtually non-existent market in Canada.”