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Wells Fargo Releases Commentary on State of Housing

The housing market has managed to be one of the few areas in the economy that is ""essentially unshaken"" by fiscal cliff uncertainties, according to a commentary from the ""Wells Fargo Securities Economics Group"":https://www.wellsfargo.com/com/insights/economics/.


Based on recent moves from the Federal Reserve, the commentary further noted the Fed ""appears to be banking on a housing recovery.""

Last week, the Fed announced plans to continue buying $45 billion in long-term securities amid the expiring Operation Twist. The Fed also maintained its pace of buying ""$40 billion"":http://dsnews.comarticles/fomc-adopts-familiar-looking-stimulus-plan-2012-09-13 each month in mortgage-backed securities.

While the price tag for such a move is steep, the effect appears to be more subtle.

In the commentary, the group said, ""the Fed is slated to add more than a trillion dollars to its balance sheet over the next year"" and ""the moves have so far had little impact on already-low long-term interest rates.""


Even though the impact on rates may not be drastic, the group noted a less quantifiable positive effect.

""While further interest rate reductions will do little to improve affordability or attract buyers, they may instill confidence, particularly among builders and lenders,"" according to the commentary.

In addition to actions from the Fed, the housing market has gained support from other factors such as an improving unemployment rate, increasing home prices and sales, and decreasing foreclosures.
Notably, the decline in foreclosure sales has helped existing home prices, which have ""increased 10.9 percent"":http://dsnews.comarticles/existing-home-sales-up-in-oct-2012-11-19 year-over-year in October while foreclosure sales have declined to 12 percent of total sales, according to the National Association of Realtors (NAR).

But, as conventional activity slows due to seasonal effects, the group warned the share of foreclosure sales could increase, which would bring down prices.

However, the increased use of short sales over foreclosures has provided median home prices with support.

The commentary noted data from NAR, which found markdowns for foreclosures averaged about 20 percent below market value in October, while short sales were discounted by 14 percent.

Although Wells Fargo said, ""home prices have bottomed"" and expects to see increases ""between 2.5 and 3 percent per year for the next few years,"" the bank still cautioned home price appreciation may be ""exaggerated,"" when considering ""constrained"" inventory and seasonal factors.

About Author: Esther Cho


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