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NAR DATA POINTS TO RECOVERY, BUT FOR HOW LONG? The take on the state of the housing market, according to Capital Economics, is that the United States is currently in recovery mode. Although other reports may contend the bottom is yet to be reached, the research firm points to increasing home sales and the drop in excess supply, which leads to price gains, as reasons to believe the U.S. is beyond bottoming out. Data released in late May by the National Association of Realtors (NAR) backs what Capital Economics had to say. NAR reported a rise in existing home sales in April after a two-month drop, accompanied by a rise in median home prices. Lawrence Yun, NAR chief economist, responded to the data which his own declaration that the housing recovery is underway, and he said, it "appears to be extending to home prices." All-cash sales made up 29 percent of transactions in April and investors purchased 20 percent of homes, according to NAR latest report. Capital Economics noted that cash buyers and investors are driving improvement in sales, which explains the growth despite tight lending conditions. NAR also reported a 10.1 percent yearly rise in the median price of existing homes, with all four regions of the country posting annual increases. Calling the rise in home prices a "big surprise," Patrick Newport of IHS Global Insight, said without more information, it's impossible to tell what caused prices to climb last month. "Home prices can shoot up, among other reasons, if demand picks up sharply, if the proportion of distressed sales drops sharply, if the proportion of more expensive homes sold rises sharply, or some combination of these," Newport explained. Even with positive reports on the housing market, the question of how long it will last still remains. 32 In a separate report released just before NAR issued its April market analysis, Capital Economics pointed to two pressing issues that threaten to shake up the market and derail recovery: the impact of the eurozone crisis and the national servicing settlement's effect on foreclosure inventory. "If the euro-zone crisis prompts a second full-blown credit crunch in the U.S., the housing recovering would be quickly snuffed out," said Paul Diggle, author of the Capital Economics report. "However, we think that the U.S. will shrug off a limited euro-zone break up, allowing the housing recovery to continue." Although it's still early, there has also been speculation that the $25 billion multistate robosigning settlement will lead to a surge of homes moving from shadow inventory to the visible supply, further adding to the already high share of distressed homes on the market. "If banks push forward with foreclosure auctions for the one million homes in the foreclosure process that would have been brought to the market over the previous 18 months had it not been for delays following the robo-signing scandal, then supply conditions could loosen and prices could fall further," Capital Economics stated. Even if foreclosure inventory did increase due to the settlement, the global research firm believes demand from investors and improvement in the number of first-time and repeat buyers should be enough to absorb the increase in supply. While the firm's analysts believe the housing market will maintain its composure through rough spots, Capital Economics said even the most drastic of government interventions is limited in speeding things up, and right now, time is probably the best healer. AGENCIES SEE IMPROVEMENT IN CONSUMER DEFAULT RATES Data through March 2012, released in midApril by S&P Indices and Experian, showed that, with the exception of bank cards, all consumer loan types saw a decrease in default rates for the third consecutive month and, in March, posted their lowest rates since the end of the recent economic crisis. The S&P/Experian Consumer Credit Default Indices measure changes in consumer credit defaults by tracking the default experience of consumer balances in four key loan categories: first mortgage lien, second mortgage lien, auto, and bank card. The national composite reading of defaults across all four categories declined to 1.96 percent in March, down from the February rate of 2.09 percent. The first mortgage default rate decreased from February's 2.02 percent to 1.88 percent in March, according to the agencies' report. Second mortgage defaults declined from 1.20 percent to 1.03 percent over the same period. Overall, the financial health of consumers appears to strengthen as S&P and Experian recorded a similar decline for auto loan defaults, which slipped to 1.11 percent. Bank card was the only loan type where default rates increased in March, rising 6 basis points to 4.47 percent. "The first quarter of 2012 was largely positive for the consumer," said David M. Blitzer, managing director and chairman of the index committee for S&P Indices. "Not only have we resumed the downward trend in consumer default rates that began in the spring of 2009, but we appear to be reaching new lows across most loan types." Blitzer notes the first three months of 2012 show broad-based declines in default rates with first and second mortgage, auto, and composite default rates all reaching post-recession lows. "The first mortgage default rate fell by 14 basis points in March, bringing this rate below the prior August 2011 low," Blitzer explained. "The second mortgage rate fell by even more during the month, 17 basis points, . . . also at [its] lowest in the three-plus-year history of these data." The S&P/Experian Indices are calculated based on data extracted from Experian's consumer credit database, which is populated with individual consumer loan and payment data submitted by lenders, including banks and mortgage companies, every month. Experian's base of data contributors covers approximately $11 trillion in outstanding loans sourced from 11,500 lenders.

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