Home values in June fell 0.08% relative to May levels and fell 6.2% relative to June 2010 levels (see Figures 1 and 2). This is the lowest depreciation rate nationally since the start of the housing recession in June 2006. Let’s start with the positive interpretation aspects of this development. First, we’re seeing this improving performance (decreasing depreciation) in a period devoid of tax credits. This casts the data in a fundamentally different light than the period between October 2008 and July 2009 when we last saw such a strong improvement in depreciation rates. This improvement was, of course, largely courtesy of both federal home buyer tax credits and large-scale foreclosure moratoriums. So, in that context, we should feel pretty good about the current numbers.
Now, for a little dose of realism that should encourage us not to get carried away with euphoria. While we don’t have large-scale foreclosure moratoriums in place right now, we do have a fundamentally slower and longer foreclosure process than we had prior to the fall of 2010 (when robo-signing foreclosures became bad business practice) which means that we are accumulating a big pile of foreclosures in the wings versus dumping them onto the market. Not surprisingly, this limbo status for foreclosures makes near-term performance look better, but at the expense of a longer period of time before truly healthy home value appreciation rates return. The robo-signing controversy was a game-changer. The process has been slowed, probably forever, and that will extend the time it takes to work through foreclosures. See Figure 3 for current foreclosure liquidation rates.
As we’ve been seeing in previous months, the monthly change in home values among the three tiers of home values (bottom, middle and top) are again back into rough alignment (see Figure 4). This represents little change for affluent homeowners who’ve had a much better go of it during the housing recession, but at least those homeowners in the lowest tier of home values are, at last, seeing similar performance as those in the top tier of home values.
In short, people are anxious for a recovery, and they’re likely to look at the near-term results because they are positive, but it’s important to look at the whole picture. We can’t be short-sighted. This quarter’s performance is encouraging certainly, but one positive quarter does not a recovery make. There are a lot of factors playing into the market right now – a still-weak job market, a full foreclosure pipeline, fragile consumer sentiment, and signs of renewed weakness in overall economic output. In contrast to prior economic recoveries, housing will be less a catalyst for healing and more a product of these various other factors.