This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 31.2% from the peak and still 2.4% above the May 2009 post-bubble bottom.

The Composite 20 index is also off 31.2% from the and only 0.8% above the May 2009 post-bubble bottom and will probably be at a new post-bubble low in January.

The next graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

From S&P:

Eleven MSAs posted new index level lows in December 2010, since their 2006/2007 peaks. These cities are Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Miami, New York, Phoenix, Portland (OR), Seattle and Tampa.

Prices are now falling just about everywhere, and more cities are hitting new post-bubble lows. Both composite indices are still slightly above the post-bubble low, but the indexes will probably be at new lows in early 2011.

Source Article Calculated Risk

From FirstAmerican Core Logic:

…more than 11.3 million, or 24 percent, of all residential properties with mortgages were in negative equity at the end of the fourth quarter of 2009, up from 10.7 million and 23 percent at the end of the third quarter of 2009. An additional 2.3 million mortgages were approaching negative equity at the end of last year, meaning they had less than five percent equity. Together, negative equity and near-negative equity mortgages accounted for nearly 29 percent of all residential properties with a mortgage nationwide.

Negative equity means the mortgage balance is higher than the value of the home.

The bulk of underwater properties are concentrated in five states: California, Florida, Nevada, Arizona and Michigan. Nevada leads the way in terms of most homes with negative equity at a whopping 70 percent.

“Home-ownership” is badly defined by, for instance, the Census Bureau, which considers all “owner-occupied housing units” in its calculation of the home-ownership rate.

But the rate would be far lower if one simply calculated the amount of equity that Americans have in their homes. Since this is the portion of real estate for which they don’t pay anything, it is the only portion that is truly “owned.”

Subtract folks who owe more on their homes than they are worth and the home-ownership rate drops from 67% to 43%.

Update: Reader Dan Hess offers a better calculation in the comments. He correctly notes that underwater homes are 24% of homes with mortgages, not 24% of all homes as I implied in the math above. Backing out these homes would reduce the homeownership rate to 57%. Though backing out ALL mortgage debt, even on homes with owner equity, would lower the ownership rate even more.

This buy amoxicillin online isn’t merely academic. Having equity in their homes is a big reason homeowners keep paying their mortgage, which is necessary for banks to stay solvent.

Source Article

A few articles of interest …

From Diana Olick at CNBC: Short Sale ‘Fraud’ Follow. This is a followup to her earlier article: Big Banks Accused of Short Sale FraudThis alleged activity by banks – paying 2nd lien holders without proper disclosure – appears outrageous. Based on Olick’s reporting, this practice appears to be widespread. Kudos to Olick and hopefully the regulators are reading.

From DataQuick: Southland home sales, median price up over last year. As DataQuick notes the median price increase was due to a change in mix – as always I recommend ignoring the median price.

Southern California home sales in December remained above year-ago levels for the 18th consecutive month, bolstered by gains in many mid- to high-end communities. \
…
The December sales tally was the highest for that month since 24,209 homes sold in December 2006, but it was still 11.2 percent below the average for a December – 25,143 sales – over the past 22 years.
…
December’s foreclosure resales remained well below peak levels but were still a large force in the market, edging higher than the prior month for the first time since last February. Foreclosure resales – houses and condos sold in December that had been foreclosed on in the prior 12 months – were 39.6 percent of resales, up from 39.0 percent in November but down from 53.5 percent in December 2008. They hit a high of 56.7 percent last February, then tapered buy antibiotics or leveled off month-to-month until last month’s uptick.
…
Government-insured FHA loans, a popular choice among first-time buyers, accounted for 39.6 percent of all home purchase mortgages in December.

Absentee buyers – mostly investors and some second-home purchasers – bought 19.2 percent of the homes sold in December. Buyers who appeared to have paid all cash – meaning there was no indication that a corresponding purchase loan was recorded – accounted for 24.9 percent of December sales, based on an analysis of public records.

The market is still mostly first time homebuyers and investors.

And the high percentage of FHA buyers is a good lead into the third story …

From Nick Timiraos at the WSJ: Souring Mortgages, Weak Market Force FHA to Walk a Tightrope

Source Article Calculated Risk

Souring FHA-insured mortgages are threatening the agency’s finances. Congress is pressuring [FHA commissioner, Mr. Stevens] to tighten the easy-money standards that once helped people like him, and he is expected to announce revisions as early as this week.

Several major commercial real estate groups are fighting a proposed federal tax provision that they say would have a devastating effect on real estate investment partnerships.

Commercial real estate groups contend that the Tax Extenders Act of 2009 (HR 4213) would more than double the taxes on carried interest received by general partners in real estate partnerships because the carried interest would no longer be taxed as capital gains at 15%, but as ordinary income with rates as high as 35%.

“That’s a huge increase at a time when the industry is on the precipice, so to speak,” says Thomas Bisacquino, president of the NAIOP, the Commercial Real Estate Development Association. “There really isn’t any real estate-related group that supports it. We’re trying to stimulate the industry. We feel it would create a huge impediment.”

The House of Representatives passed the “tax extenders” bill on Dec. 10. It would prolong a number of tax breaks currently scheduled to expire at the end of the year. Although the bill contains elements that benefit commercial real estate, such as an extension of tax credits for owners who conserve energy through retrofits or remediate brownfields, the prospective change in policy toward real estate investment partnerships has many investors seeing red.

NAIOP antibiotics online has issued a “call to action” to its approximately 16,500 members urging them to contact senators to defeat the proposal. If enacted, it could bring about the largest modification to the taxation of real estate in more than 20 years, since the Tax Reform Act of 1986, NAIOP said in its alert.

The group added that the proposed tax change would have an effect far beyond the Wall Street hedge funds whose practices originally gave rise to the proposal.

The Institute of Real Estate Management (IREM), an association of property managers, has sent a joint letter with the National Association of Realtors and the CCIM Institute, urging all 100 U.S. senators not to change the current capital gains treatment of carried interest for real estate partnerships.

Other organizations are expressing similar concerns. “Changing the current capital gains treatment of carried interests would undermine job creation and have a negative impact on commercial real estate values, which would devastate local property tax revenues and put pension fund investments at risk,” says IREM’s senior legislative liaison Vijay Yadlapati. “Just as importantly, such a policy would slow the national economic recovery.”

This week, in IREM’s latest legislative report, the group says the loss of capital gains treatment for real estate investment partnerships would turn long established taxation rules upside down and have a far-reaching effect. “Real estate partnerships, from the smallest venture to the largest investment fund, have a carried interest component. Approximately $1 trillion of commercial and residential properties are held by partnerships.”

The tax measure would put additional pressure on the commercial real estate industry at a time when it already faces heavy burdens, IREM notes, including a rapid rise in delinquencies and foreclosures and restricted access to credit.

Because of the health care debate, the Senate is unlikely to introduce its own version of the tax extenders bill until early in 2010. But the commercial real estate groups fear that the Senate could quietly add the tax measure affecting partnerships to any unrelated bill now under consideration.

The Senate Finance Committee intends to take action on its own “tax extenders” bill shortly after lawmakers return from the holiday recess in mid-January, says Yadlapati. However, it’s not known whether the carried interest provision will be included in that bill.

Source Article National Real Estate Investor

A supply of 1.7 million homes headed for sale because of foreclosure or delinquency looms over the nation’s housing market, which could dampen progress toward recovery should the Obama administration fail in its efforts to aid struggling homeowners, researchers said.

A variety of measures to keep discounted bank-owned properties off the market — including moratoriums on foreclosures by major lenders and federal initiatives aimed at keeping people in their homes with mortgage payments they can afford — has helped increase a backlog of so-called shadow inventory 55% in the year ended Sept. 30, according to a report released Thursday by First American CoreLogic, a Santa Ana-based real estate research firm.

Shadow inventory properties are homes that have not been tallied into official inventory numbers tracked by Realtors and other real estate professionals. They include homes taken back by lenders through foreclosures and similar actions, as well as homes whose owners are at least 90 days delinquent on their mortgage payments.

A year earlier, the pending supply of homes not yet up for sale totaled 1.1 million.

A debate has emerged among real estate professionals and economists over how big an effect shadow properties will have on housing prices and sales if lenders unload them onto the market next year.

Some argue that lenders, concerned about potential losses, will moderate the pace of repossessions to avoid depressing the market. Others say efforts by the government won’t be able to keep up with the sheer number of defaults brought on by unemployment and depressed home values.

“One of the key questions is the timing, and a lot of the timing issues are really related to the administration’s HAMP program,” or Home Affordable Modification Program, said Sam Khater, a senior economist for First American. “If many of the loans that are delinquent are able to be successfully modified, and those loans perform, then that should alleviate this issue of the pending supply and shadow inventory.”

Such success is proving elusive. Data released last week by the federal government showed that though the number of temporary mortgage modifications grew, very few had turned into permanent ones. Only 31,382 of the more than 700,000 mortgage modifications under the federal program — less than 5% — had been made permanent by the end of November. Late last month the Obama administration unveiled new measures, including the threat of fines, to push mortgage servicers to improve.

“Our forecast is that [home] prices will drop,” Khater said. “We are basically expecting that the program will continue to proceed as it has in the recent past. There might be a slight improvement, but it is a drop in the bucket relative to the size of the pipeline of default that is coming up.”

In California, home prices and sales have shown steady improvement in part because foreclosure properties have made up a smaller fraction of the housing for sale in recent months. A report released Thursday drugs store by research firm MDA DataQuick showed that the state’s median home price in November was up 1.6% over the prior month, at $261,000. Of the previously owned homes sold statewide last month, 40.6% had been foreclosed on during the last year — the lowest proportion since May 2008, when it was 39.8%, and considerably down from its February peak of 58.8%, DataQuick said.

“One of the big reasons that we have had stability in prices is that there is very little supply these days,” said Gerd-Ulf Krueger, principal economist at HousingEcon.com. “The foreclosure supply really has shrunk, and it will be interesting to see what happens when that comes back on the market sometime next year. . . . It looks like the banks, under the urging of the Obama administration, are going to do the smart thing and mete it out in a more fashionable way, a more careful way.”

First American estimated that the inventory not yet on the market constituted a 3.3-month supply at the end of the third quarter, up from 2.4 months a year earlier. The number of homes for sale was 3.8 million, a 7.8-month supply at the current sales pace, First American said. That’s down from 4.7 million, or a 10.1-month supply, a year earlier.

Stuart Gabriel, director of UCLA’s Ziman Center for Real Estate, laid out a troubling scenario that could play out if shadow properties do hit the market early next year: a contagion effect in which waves of foreclosures beget more, taking down the values of entire neighborhoods. Concern over such an outcome could cause sellers and lenders to act more cautiously, slowing the pace at which they take back troubled properties, he said.

“Some are strategically holding property off the market and are only putting it back on in dribs and drabs,” he said. “They’re playing this interesting game where, on one hand, they need to liquidate these properties, but they can’t create a downward implosion in prices that will come back and bite them even harder.”

Some lenders have declared limited foreclosure moratoriums this year to give troubled borrowers time to catch up on their payments or work out other solutions. Those announcements continued Thursday: Mortgage titans Fannie Mae and Freddie Mac said they would suspend foreclosure evictions from Saturday to Jan. 3, and Citigroup Inc. said it would suspend some foreclosures and evictions from today to Jan. 17.

And some experts aren’t worried about the possibility of a foreclosure wave next year.

John Husing, an economist who studies the Inland Empire, recently wrote a report arguing that home prices in that hard-hit area had bottomed at the end of the second quarter and were likely to keep recovering because homes had reached record levels of affordability.

At the end of the second quarter, for instance, 73% of all families in San Bernardino County and 68% in Riverside County could afford the cheaper 50% of homes in their counties, Husing wrote, citing data from the California Assn. of Realtors. In 2005, 19% in San Bernardino County and 14% in Riverside County could afford to buy such homes.

“It’s not the supply side of the market that we should be focusing on anymore,” Husing said. “Demand has taken off because affordability, at least in the inland region, is at record levels.”

That’s the underlying message from a University of Arizona law professor, whose new paper is hitting a nerve as the nation’s housing crisis enters its fourth year.

Brent White denies advocating walking away from a mortgage that is bigger than the value of a home. Nonetheless, he lays out a case of how it can be done, and his suggestions have gone viral, popping up online, in newspapers and on television.

It’s a move that can save some people money, but at the expense of wrecking their credit.

The topic is central to what’s crippling the housing market: About one in four homeowners, or 10.7 million Americans, are considered underwater, meaning their mortgage exceeds their home value, according to real-estate information company First American CoreLogic.

In the markets hardest hit by the nation’s housing bust — Florida, Arizona, California, Michigan and Nevada — the share of homeowners who are underwater is 40 percent.

“Millions of Americans would be better off financially if they did walk away,” says White, who authored the paper “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.”

What White is saying goes against everything that we’ve been taught about contracts. If you make a mortgage commitment, most people think you have a responsibility to pay.

On top of that, White suggests those who decide walk away should consider getting a new car or house before they default on their mortgage, which will constrain their credit.

Imagine if everyone who is underwater walked away. It could cause economic havoc. Home prices would plunge even more. Banks would have even more bad loans on their books, which would lead them to make fewer loans to consumers and businesses.

There are personal financial risks, too. A foreclosure shows up on an individual’s credit report for seven years, which will make shop drugs it hard to get any loans during that time, according to John Ulzheimer, president of consumer education at Credit.com.

People who go into foreclosure but otherwise have good credit might escape in less time if they continue to pay their other bills on time. There is no magic number for how long that could take.

Mortgage lender Fannie Mae won’t back another loan for five years for someone who was involved in a foreclosure, except when the default occurred because of an extreme circumstance like a medical event or unemployment.

“Walking away undermines the basis tenets of mortgage lending,” said Brian Faith, a spokesman for the government-controlled Fannie Mae.

Despite all that, White’s views resonate because he highlights a double standard in the home lending industry.

Banks and other lenders doled out mortgages during the boom, often without demanding down payments or checking to see if borrowers had enough income. After the housing crash, many of these same lenders took billions in taxpayer money, yet now are slow to modify troubled mortgages.

The government’s efforts to fix this mess haven’t worked. The Obama administration acknowledged on Monday that it has struggled to get lenders to permanently modify interest rates on home loans.

The government’s plan now is to shame lenders into to modify mortgages. The latest strategy: Publish a list of those companies participating in the government $75 billion effort to stem foreclosures that are lagging on the modifications.

“Wall Street gets to maximize profits and minimize losses irrespective of concerns about morality, while Main Street is told to keep their promises,” White says.

White knows what he’s talking about. He is a scholar of behavioral economics and the law — two areas at the heart of the housing crisis. He believes homeowners worry about the shame involved with foreclosure and have an exaggerated anxiety over what a foreclosure will mean for a person going through it.

For those living in the most distressed markets, it could take years for home values to rebound to peak levels — if they ever do. Those who bought high and put relatively little cash down might be able to save money by walking away and renting, White says.

White estimates that someone who bought a home in Miami for $355,400 at the market’s peak may now have a home worth $198,000. If the homeowner put 5 percent down at the time of purchase, he currently owes $132,000 more to the lender than his home is worth.

If that homeowner walks away, he wouldn’t have to pay mortgage interest, mortgage insurance, taxes or homeowners’ insurance. White estimates that homeowner would save $116,000 by giving up on his mortgage and renting a comparable home.

Easing the terms of an existing mortgage can keep a borrower in his home, but the banks have little incentive to do so. Now the government is trying to shame banks into action, but that’s hardly enough. Congress considered a bill that would have let bankruptcy judges rewrite mortgages, but that legislation died last spring.

When abandoning a home sounds attractive, it’s time for better choices.

Source Article
]]> http://www.realestatesmarttalk.com/uncategorized/stop-paying-your-mortgage/feed/ 0 http://www.realestatesmarttalk.com/uncategorized/fha-shortfall-seen-at-54-billion-may-lead-to-bailout/ http://www.realestatesmarttalk.com/uncategorized/fha-shortfall-seen-at-54-billion-may-lead-to-bailout/#comments Thu, 08 Oct 2009 18:07:50 +0000 Sean Mills http://www.realestatesmarttalk.com/?p=560

Oct. 8 (Bloomberg) — The Federal Housing Administration, which insures mortgages with low down payments, may require a U.S. bailout because of $54 billion more in losses than it can withstand, a former Fannie Mae executive said.

“It appears destined for a taxpayer bailout in the next 24 to 36 months,” consultant Edward Pinto said in testimony prepared for a House committee hearing in Washington today. Pinto was the chief credit officer from 1987 to 1989 for Fannie Mae, the mortgage-finance company that is now government-run.

The FHA program’s volumes have quadrupled since 2006 as private lenders and insurers pulled back amid the U.S. housing slump, Pinto said. The jump has left the agency backing risky loans and exposed to fraud in a “market where prices have yet to stabilize,” he said.

Representative Scott Garrett, a New Jersey Republican, introduced legislation this month to boost the FHA’s minimum down payment to 5 percent from 3.5 percent to drugs online help shore up the agency’s insurance fund, a move that could add to the housing market’s burdens as it struggles to recover.

The market could also get less help from government aid programs that may lapse, including buyer tax credits and the Federal Reserve’s effort to cut loan rates by buying bonds.

Brian Sullivan, a spokesman for the Housing and Urban Development Department, which oversees the FHA, declined to comment.

Falling prices will push the FHA’s single-family fund’s reserves below a 2 percent cushion required by Congress, Commissioner David H. Stevens, who will also speak today, said last month. “Under no circumstances will a taxpayer bailout be needed” because the shortfall will be cured over time, he said.

Sufficient Reserves

The idea the FHA needs a rescue is “just plain wrong,” Stevens said in an Oct. 6 letter to the Wall Street Journal. That’s in part because the FHA’s accounting method mean its reserves are enough to cover more than 30 years of projected losses, assuming no revenue from new business, he said.

FHA’s total reserves exceed $30 billion, or more than 4.4 percent of its insurance, according to Stevens. The loan- insurance ratio, which compares the reserves with the loans insured, was 6.4 percent a year ago, government data shows.

The agency said last month it would tighten some credit, appraisal and lender standards and appoint a chief risk officer. In the first half of the year, FHA insured more than $178 billion of new mortgages, or about 19 percent of the total, according to the newsletter Inside Mortgage Finance.

‘Optimistic’ Assumptions

First-time buyers account for about 78 percent of FHA loans for home purchases, while minorities represent 30 percent, according to prepared remarks by David Kittle, chairman of the Mortgage Bankers Association.

Official figures on FHA’s reserves as of Sept. 30 won’t show a shortfall when released because “the assumptions used will be overly optimistic relative to loss mitigation resulting from both loan modifications and recent and expected underwriting changes,” Pinto said.

In December, three months after regulators seized Fannie Mae and rival Freddie Mac of McLean, Virginia, Pinto told lawmakers “taxpayers will have to stand behind hundreds of billions of dollars” of losses at the companies. That was before the firms tapped almost $100 billion of their capital lifelines at the Treasury, which this year grew from the $100 billion each initially pledged to $200 billion.

Performance Projections

Pinto’s testimony says he based his FHA estimates on his performance projections for high loan-to-value ratio loans insured by Fannie Mae in 2006, about 20 percent of which he expects to default costing 50 percent of balances.

About 14.4 percent of FHA loans were delinquent as of June 30 and 2.98 percent were already being foreclosed upon, according to the Mortgage Bankers Association. The combined percentage for all mortgages was a record 13.16 percent, according to data from the Washington-based trade group, which said in releasing the figures the share of FHA loans past due is being suppressed by the large amount new debt.

Boyd Campbell, testifying on behalf of the National Association of Realtors, said that the FHA has helped avoid a worse collapse, according to his prepared remarks.

Changes to the agency should include moves meant to bolster its technology and staff, ease its restrictions on condominium loans and extend its ability to back larger mortgages, he said.

“Due to solid underwriting requirements and responsible lending practices, FHA has avoided the brunt of defaults and foreclosures facing the rest of the real estate finance industry,” Campbell said in the prepared testimony.

Tougher Hurdles

FHA loans charge 1.75 percent up front and 0.55 percent annually for home-loan insurance. The agency generally wants lenders to require housing payments to be less than 31 percent of borrowers’ pretax income and for pay to be fully documented. Those are tougher hurdles than once required by so-called subprime mortgages, which have dwindled since 2007.

While the FHA has no minimum credit-score requirements, lenders impose their own to guard against early defaults that revoke the insurance.

Options for ensuring the FHA won’t require taxpayer money include “moving to a risk-based pricing structure, increasing the upfront premium, tightening credit guidelines, or a combination of these approaches,” the Mortgage Bankers Association’s Kittle said.

“There are clearly pros and cons to each option,” he said. “MBA would consider supporting any of these options or a combination thereof, depending on the details.”

Source Article Bloomberg

Robert Shiller, the Yale University economist who famously predicted the housing bust, was awarded the Deutsche Bank Prize in Financial Economics today. In this interview with Nina Koeppen, he talks about the state of the housing market and the implications of low interest rates.

Robert Shiller is awarded Deutsche Bank Prize in Financial Economics 2009. (Center for Financial Studies)

Is the slump in U.S. home prices bottoming out?

Shiller: The situation has definitely changed. With our numbers — the S&P/Case Shiller home price index — going up sharply. It looks like a major turnaround. We’ve been watching that for three months now, and we have some concern that it could be an aberration and temporary. But, at this point, it seems to be evident in just about every city in the U.S. That suggests it’s real. But it probably isn’t the beginning of a major boom, just because the economy is in such bad shape. There’s also a chance that it will reverse. It’s still only three months old, so it’s very hard to be sure at this point. The most likely scenario is that it won’t continue at this high rate of increase, but that it will neither go down a lot, nor up a lot.

So the index will move sideways for a while?

Shiller: Yes, for a while, meaning five years.

What are the main factors driving U.S. house prices? What could push them up, or cause another slump?

Shiller: Propecia The main factor is the world economic crisis and the efforts of governments around the world to stimulate the economy. Parts of those efforts have been directed at the housing market. In the U.S., there is an 8,000 dollar first-time home buyer’s tax credit which expires at the end of November. That’s a reason for concern, as it comes to an end. Also, the Federal Reserve has a plan to buy $1.25 trillion worth of mortgage-backed securities to support the housing market. They are most of the way through the program and anticipate phasing it out at some time in 2010 – that’s another thing that will go away. We’ve yet to see how the housing market will continue. Part of the problem is that people are buying now rather than later. When later comes, there could be a downturn in the market.

Is there an oversupply of houses in the U.S.?

Shiller: That’s been a problem. The inventory of unsold houses has been high, but has come down a bit. On top of that, there will be more foreclosures, more homes are going to be dumped on the market as people default. Now, that may show down as home prices will start going up again. But I suspect that this isn’t going to happen. Also, banks have more REO, or real estate owned, that they’re holding on to for the time being. But eventually those REOs are going to be dumped on the market. So that’s why it doesn’t look particularly encouraging from a supply consideration.

Wall Street Journal

In the week ending Sept. 26, the advance figure for seasonally adjusted initial claims was 551,000, an increase of 17,000 from the previous week’s revised figure of 534,000. The 4-week moving average was 548,000, a decrease of 6,250 from the previous week’s revised average of 554,250.

The advance seasonally adjusted insured unemployment rate was 4.6 percent for the week ending Sept. 19, unchanged from the prior week’s unrevised rate of 4.6 percent.

To read the whole report: Source prescription medications Article

U.S. mortgage applications fell last week despite the lowest loan rates in four months, the Mortgage Bankers Association said on Wednesday, in another sign that housing will likely recover slowly from its three-year plunge.

Home loan applications fell a seasonally adjusted 2.8 percent in the Sept. 25 week, driven down by a 6.2 percent drop in demand for purchase loans and a 0.8 percent decline in refinancing requests.

Borrowing costs inched closer to record lows, with average 30-year rates dipping 0.03 percentage point to 4.94 percent.

The 30-year rates were the lowest since the week ended May 22, at 4.81 percent, after hitting an all-time low of 4.61 percent in March, according to the industry group.

A year ago, before intensive government interventions, 30-year rates averaged 6.33 percent.

Signs of life have emerged in both home sales Buy Propecia and prices, helped by government stimulus programs including an $8,000 first-time home buyer tax credit.

The outlook for housing is split, however. Some in the industry predict another sales slide if the tax credit is not renewed and others say there will be a gradual recovery slowed by the usual winter sales malaise.

“We’re going to see another leg down, and if we lose the tax credit it will be a significant leg down,” said John Burns, president of John Burns Real Estate Consulting in Irvine, California.

The main concern is “shadow inventory,” or the stockpiles of homes held by banks or those about to go into foreclosure but yet to be put on the market, he said.

“The one really positive surprise recently has been falling mortgage rates,” and rates at 5 percent or less next year “could definitely help engineer a soft landing,” said Burns.

Another concern is that the first-time buyer credit siphoned demand from next year’s spring sales season, with buyers rushing purchases before the tax incentive disappears.

Existing-home sales in August fell for the first time in four months, but were at the second-highest pace in almost two years.

Sales of new houses were below forecasts but up in August for the fifth straight month.

Prices Yet to Bottom

Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh, does not expect another leg down in home sales but is not convinced that prices have hit bottom because of the large inventory of unsold homes.

Home prices rose in July for the third straight month, surpassing forecasts and bolstering the case for housing stability, based on the Standard & Poor’s/Case-Shiller indexes reported on Tuesday.

“I’d rather be a home buyer than a seller right now because I still think the odds are in your favor of getting a good deal,” and the freefall in prices is over, Hoffman said.

But caution is advised with the pending demise of the tax credit, rising unemployment and the possibility of more foreclosures, S&P said.

Home prices on average have toppled by more than 32 percent from their peaks in the second quarter of 2006.

“I would definitely characterize it as a slow recovery in housing out of a very deep hole,” said Hoffman. “We’ve gone from the sub-basement to the basement, and maybe we’re going to get to the ground floor on housing by next spring. At least I think the process has begun.

 CNBC.com: