The Housing Market Shows Signs of Life

So what to make of this morning's news that house prices actually rose at a decent clip in July?  Not as much as some commentators have. 

For starters, house prices peak in the spring and early summer, because people want to move in time for the school year.  As we head into winter, those prices will fall.

And they may get a little push down that slope.  Amid everything the government is doing in the economy, it's easy to forget that they've been putting quite a lot of effort into supporting house prices.  (Supporting, a relative term, in this case meaning keeping them from falling farther).  The FHA has stepped in as the lender of last resort, while the first time homebuyer tax credits have encouraged at least a few people to jump into the market.  Meanwhile, the mortgage modification efforts have kept some foreclosures from happening--but since optimistic estimates place the projected redefaults at 35%, and more conservative estimates look for half or more of the modifications to fail, many of those foreclosures have simply been delayed, and will end up back on the market in winter and early spring.

Too, the sheer volume of the claims has meant the banks aren't moving any too fast on their own.  But as they ramp up their modification and foreclosure capacity, the people who are currently stuck in limbo--not paying the mortgagea nd waiting for the bank to act--will be forced out of their homes, and those homes will be sold.  That will put further downward pressure on houses.

Add to that the fact that many analysts think the biggest problem in the mortgage market is no longer exotic loans, but unemployment--people are defaulting because they basically can't afford any mortgage payment. 

So while the worst of the bloodshed may be over, I don't think anyone should be looking for a price recovery any time soon.