Housing’s Recovery Won’t Arrive Until 2011: Report

(Update 1: clarified that recovery estimate is not Radar Logic-generated)

A report released Tuesday afternoon by property information firm Radar Logic Inc. suggests that borrowers may be waiting much longer than some have suggested to see recovery in much of the U.S. housing market. How long? Try 2011.

Radar Logic publishes price-per-square-foot data used as the basis for the Residential Property Index, or RPX market, used by most hedge funds and institutional investors to hedge their mortgage-related bets. The RPX in particular has become a popular source of hedging for distressed mortgage investors purchasing whole loans.

The 2011 estimate is not the company’s own, but is based on a forward curve produced from futures trading in the RPX market, Radar Logic said. “That curve suggests weakness through 2009, stability in 2010, and a recovery in 2011,” according to the report. “This is in contrast to some industry economists who are calling for a bottom in 2009.”

In June, 23 of 25 MSAs tracked by Radar Logic experienced year-over-year price declines; the largest declines were in Las Vegas, Phoenix and the California MSAs, the company said.

Seasonal increases in both price per square foot and transaction count were observed in many markets, with month-over-month price increases in 12 MSAs and month-over-month transaction count increases in 19 MSAs. Seasonal increases not withstanding, most MSAs exhibited transaction counts well below the levels recorded one year earlier.

In St. Louis, Missouri, for example, transaction counts during June were off more than 88 percent from one year ago; in Las Vegas, transactions fell nearly 64 percent year-over year; and in Los Angeles, transactions were almost 32 percent off.

Motivated sales rule the roost
As we’ve covered extensively in recent month, distressed sales — what Radar Logic calls “motivated sales” — have come to dominate some of the hardest-hit housing markets. Motivated sales represented 20.1 percent of the transactions across all 25 RPX MSAs for June 2008, compared to 18.9 percent in May and 5.2 percent a year ago.

“Not surprisingly, June 2008 year-over-year RPX values continue to show weakness. But a closer examination shows both seasonally appropriate strength as well as early signs of the absorption of distressed inventory,” said Michael Feder, CEO of Radar Logic. “While it is too soon to call this a bottom, these factors deserve close attention in the coming months.”

So-called “motivated sales” comprised 32.5 percent of the market in Los Angeles during June, up 27.6 percent compared to May and more than five times the levels seen one year earlier; even in New York city, which has largely escaped the housing bust, distressed transactions were up 15.7 percent month-to-month and 65 percent over last year’s levels.

Also deserving close attention is the effect of a stark dichotomy in pricing trends among distressed sales and more traditional retail sales; Radar Logic’s data shows evidence of substantial discounts in so-called “motivated sales.”

Above, a chart of price-per-square foot recorded in the Los Angeles MSA shows the clear effect of REO and other distressed inventory on pricing in the MSA; other MSAs are showing similar trending, and it remains to be seen if traditional retail sellers can continue to justify their sales prices in the face of such steep discounts on the distressed side of the market.

For more information, visit http://www.radarlogic.com.