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Home | News | Foreclosure | DBRS Warns of Threats to the Home Price Recovery
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DBRS Warns of Threats to the Home Price Recovery

Home prices may appear to be in recovery mode, but they haven't reached bottom yet and probably won't until sometime in 2014, according to a report from ""DBRS"":


Although the rating agency acknowledged positive housing trends in 2012, such as signs of recovery for home prices, decreasing delinquencies, and more prime jumbo securitizations, DBRS still stated it ""believes that the housing market will remain under pressure in the foreseeable future.""

To make its point, DBRS noted households have limited financing options, the unemployment rate remains high, household income continues to fall on an inflation-adjusted level, and about ""one in five homeowners"": are underwater.

In addition to economic issues, DBRS also says shadow inventory threatens the recovery in home prices in the short run. As of October 2012, the rating agency says there were about 2.29 million homes in shadow inventory.

""Once unleashed, the number of shadow properties will undoubtedly boost supply and distress the local markets that were just beginning to recuperate,"" the report stated.


DBRS also explained shadow inventory can vary greatly by state, depending in whether a state uses a judicial or non-judicial foreclosure process. For judicial states with long liquidation timelines such as New York and New Jersey, the report stated it can take close to three years before a property in foreclosure finally leaves the pipeline.

DBRS also says data from the National Association of Realtors (NAR) suggests months supply of shadow inventory in judicial states is 25 months compared to 12 months for non-judicial states.

Even though there are concerns with shadow inventory, DBRS acknowledged inventory is trending downward, with visible inventory down 21 percent form a year ago and shadow inventory down 10 percent from a year ago. In addition, NAR ""reported"": Tuesday the supply of existing homes for sale fell to 1.82 million in December, the lowest level since January 2001. Available inventory for existing homes in December represents a supply of 4.4 months.

Furthermore, short sales and deeds-in-lieu are becoming more commonly used tools, with short sales up more than 11 times since the beginning of 2008 and deeds-in-lieu up 1.6 times over the same time period, according to DBRS. And, investors are absorbing the inventory of lower-tier properties in certain areas, but DBRS explained investor purchases appear to be highly targeted so only certain cities are seeing a reduction in bottom-tier inventory.

The improvements though were still not enough to convince the rating agency prices are bound for increases in 2013.

""All things considered, DBRS's Peak-to-Trough Home Price Forecast Model continues to project a further 3% home price decline on a national level,"" the report stated.

About Author: Esther Cho

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