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Home prices higher for third straight month as 'sand states' drift away from crisis

In this April 26, 2012, file photo, a sign advertises a pending residential real estate sale in Framingham, Mass.
In this April 26, 2012, file photo, a sign advertises a pending residential real estate sale in Framingham, Mass.Bill Sikes / AP

 For the third straight month in April, American home prices twitched a tinge higher as values in the “sand states” further firmed while listings in some key northern cities continued to chill, a heavily monitored survey reported Tuesday.

The Standard & Poor's/Case Shiller composite index of 20 metropolitan areas showed a year-over-year decrease of 1.9 percent but a 0.7 percent national bump from March to April on a seasonally adjusted basis (1.3 percent non-seasonally adjusted), led by ongoing price rallies in a clump of warm-weather markets thumped by the slump, including Miami, Tampa, Las Vegas and Phoenix.

“I’ve seen (listings here) jumping just like they did back in the day when the banks were approving everything,” said Michelle Tremblay, a Realtor with West USA Realty in Phoenix.

Since last October, home values in Phoenix have inched 12 percent higher, gaining ground during each of the past six months, according to the Case Shiller index.

From Tremblay’s vantage point, however, those loftier home values are akin to steroid-swelled athletes: synthetically pumped prices caused by banks stockpiling foreclosed properties and purposely keeping them off the market until area prices truly soar. Then those same financial institutions can cash in by selling those properties at fatter profits.

“We can see on the street what’s vacant and what’s not. We’re watching these (foreclosed and non-listed) houses just sit and rot,” Tremblay said. “The banks are letting these houses just deteriorate.

“They’re holding them and releasing them slowly to drive the value up.”

Some Realtors in another so-called “sand state,” California, recently have joined that chorus, offering similar, albeit unproven, theories about banks hoarding foreclosures and thus shrinking inventory in most markets.

In three California cities on the Case Shiller index -– Los Angeles, San Diego and San Francisco -– home prices have increased during February, March and April.

Fellow “sand state” cities Miami and Tampa each have posted five straight months of home-value gains. Las Vegas, the largest metro area in Nevada – the fourth “sand state” – in April notched its third month in a row of heightened property prices, according to Case Shiller’s survey.

“Realtors across the country are all talking about the same stuff: the banks are the ones in control right now and they know it and they’re going to make the money again – and again and again,” Tremblay said. Not long ago, distressed homes “were selling, I think, too cheaply. And the banks weren’t making the money that they wanted to. So they tightened their inventory.”

In response, Wells Fargo senior economist Mark Vitner said large banks are not colluding to hoard distressed properties until better days so as to squeeze more out of the values of those homes. 

"I don't think there's any concerted effort to hold properties back from the market," Vitner said. "The process to (work through and re-sell) foreclosure inventory is lengthy and there just seems to be a lot of hurdles out there to getting these properties to market. A lot of the best properties have been in foreclosure and have already sold."

But, Vitner acknowledged that some "small community banks are holding onto properties because the value that they could realize from selling the properties is so much more than what their books currently show, (meaning that listing those distressed homes) could have an inverse impact on their balance sheets." 

Robert J. Shiller, one of the two developers of the monthly index, agreed that “it is an artificial market in that there is a lot of inventory held off.”

But Shiller, an Arthur M. Okun Professor of Economics at Yale University, sees still another hidden reservoir of prospective properties for sale – “a shadow inventory held off by homeowners who might sell if home prices come back up enough.”

Two weeks ago, market analytics service CoreLogic reported that the "residential shadow inventory" - which includes bank-owned homes - had declined to 1.5 million units in April, representing a four-month supply as well as a 14.8 percent drop from the same month one year earlier. In April 2011, the shadow inventory held a six-month supply of homes - roughly the same level as October 2008 when the housing crash began. Those CoreLogic figures seemed to bolster the view offered by Wells Fargo's Vitner that big banks are not holding back distressed properties, especially in markets where lenders have revved the pace of foreclosures.

A government market

Still, with about 90 percent of American mortgages held by Fannie Mae, Freddie Mac and the Federal Housing Authority, “it’s really a government market now," Shiller said. "So anyone contemplating speculating in housing has to think about what the government is likely to do. And we’re in limbo right now.

“We have a presidential election coming up. We haven’t resolved what were going to do with Fannie and Freddie – presumably something will be done with them afterward.”

In February 2011, the Obama administration issued a white paper that examined possible remedies for those two sputtering behemoths of housing finance. The report gave Congress options to mull. Banking giants backed the notion of axing Fannie and Freddie which, combined, ate up about $150 billion in bailout money. Groups representing consumers and the real estate industry have argued against scuttling Fannie and Freddie.

“Between all that – and the mortgage-tax interest deduction that also has been questioned in this time of deficit cutting – these things are on everyone’s mind,” Shiller said. “But there’s not a way to forecast. I think forecasting political science is even more tenuous than forecasting economics.”

Projecting the direction of home prices in several vital northern cities has grown more challenging the past year. In Boston, home prices have dipped during six of the past eight months, according to Case Shiller. In New York, property values have declined for seven consecutive months. Chicago, up a tick in April, has nonetheless posted seven price drops in nine months, the index shows.

  Is any of that political and financial uncertainty perhaps fueling some fall-off in home prices those metro areas? 

“I guess it is. People are holding off ... People are hoping for prices to go back up (in those cities),” Shiller said. “And we’ll see the shadow inventory converted into real inventory if people start to see the prices go back up.”

But in Chicago, where home prices are off 7.2 percent since last August, the Case Shiller index reports, some Realtors are blaming another segment of the home-financing equation.

“The appraisers are keeping the prices low,” said Patrick Hawkins, a broker with Dream Town Realty in Chicago.

The last time Chicago property values were this depleted on the Case Shiller index: November 2000.

“Buyers are willing to spend a little more money right now. Inventory is low. But the appraisers just are reticent to come in with a strong enough number,” Hawkins said.  “What I’m assuming an appraiser would say is: It’s the market conditions, it’s people not having enough jobs, it’s the economy.

“Appraisers – they’re killing the market. The prices have been driven down, beaten to a pulp.”

(The housing market is showing signs of life, but is it time to buy or sell a home? Join us today for a live web chat with Stan Humphries, the chief economist for real estate website Zillow. You can sign up here to ask your questions during out web chat at noon ET.)

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