First, the good news: the S&P/Case Shiller index indicated that all three headline composites ended the second quarter of 2012 with positive annual growth rates for the first time since the summer of 2010.
GLOBEST.
by Bliss Morris
First, the good news: the S&P/Case Shiller index indicated that all three headline composites ended the second quarter of 2012 with positive annual growth rates for the first time since the summer of 2010. The national composite was up 1.2% in the second quarter of 2012 compared to that recorded during the same period of 2011, and was up 6.9% over the first quarter of 2012. The 10- and 20-city composites posted respective annual returns of 0.1% and 0.5% in June 2012. Month-over-month, average home prices were up 2.2% in the 10-city composite and 2.3% in the 20-city composite compared to May. What’s more, June was the second consecutive month during which all 20 cities recorded positive monthly gains.
In fact, June would have marked the third consecutive monthly increase in home prices had values not fallen in Detroit back in April as noted by David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, in a recent report. However, Detroit posted strong numbers in the most recent index, recording the highest monthly increase at 6% over its May 2012 level. In terms of annual rates of change, Phoenix had the highest, up 13.9% from June 2011.
If this trend of increasing housing sales holds steady, we’ll likely also see more sales of non-performing residential loans, as there is a direct correlation between pricing for these loans and pricing in the residential market. We have experienced a slight uptick in residential loan pricing, which is starting to allow several of our banking clients to leverage loan sales to shed non-performing loans from their portfolios.
It’s particularly promising that several hard hit metro regions, such as Detroit and Phoenix, are showing signs of housing growth since the sheer volume of bank failures in these cities has led to larger portfolios of non-performing residential loans.
Despite these positive housing numbers, there remain plenty of uncertainties that can derail the market. Aside from continued concerns over the financial health of Europe and other parts of the world, the improvement in the US economy remains modest at best. Weak US manufacturing data reported in August, combined with a drop in construction spending in July may portend sustained economic malaise. The nonpartisan Congressional Budget Office also recently issued a report citing dire fiscal consequences if Congress fails to avert a series of tax increases and budget cuts due in January.
Meanwhile, employment gains still have a long way to go before the US makes up for the eight million jobs lost during the recession and home mortgage lending remains tight. Adding to these concerns is the fact that the most recent S&P/Case Shiller index was not all positive news for certain sectors of the housing industry. In fact, prices in Atlanta fell 12.1% this past June, compared with June 2011, while Las Vegas home prices dropped 2.1% during that same period.
With the fate of the non-performing residential loans sales market so closely tied not only to home sale values, but also the overall economy, it will be interesting to see how many of the nation’s financial issues play out over the remainder of the year and into 2013. Confidence in the economy will largely determine the volume of sales in the coming year. In our viewpoint, housing market improvements coupled with continued stagnation of the economy will certainly result in the need for increased loan sales by all types of financial institutions.