Homebuilders experienced a 22% order growth in the first quarter and are riding a tailwind heading into the second, causing Barclays Capital housing analysts to see the first signs of price increases coming back to the market.

“Not everywhere, but in enough places to matter,” they say.

In many of the markets that Barclays reviewed, it witnessed a return of broad-based price increases — a possibility, it says, very few industry watchers considered.

Stephen Kim, managing director of Barclays’ homebuilding division, tells HousingWire that Phoenix, Denver, Orange County, Calif., Westchester County, N.Y., and even parts of the hard-hit Riverside-San Bernardino, Calif., region is witnessing price comebacks.

However, commentary so far from builders reveals mixed opinions about how broad-based the increases are.

The most upbeat commentary regarding pricing has come from Lennar ($28.42 1.04%), Meritage Homes ($29.05 0%) and Ryland Group ($22.71 1.09%). Those three builders have posted the strongest order trends. All three indicate to Barclays that the opportunity for price increases is stretching from geographies and buyer types.

D.R. Horton ($16.52 0.38%), PulteGroup ($10.08 0.5%) and M/I Homes ($14.04 0.34%) posted order gains of 10% to 20%, but were relatively more cautious about their ability to secure price increases on a broad basis, analysts say.

“Yet, looking past the rhetoric, we believe that the underlying market condition being described on all of the calls is fairly consistent: Price increases are still not the norm, but in the top 25% to 35% of the builders’ communities, they are back and forcing analysts to rethink what housing’s recovery can look like in 2012,” analysts contend.

The builders are benefiting in part from low inventories of existing homes, which are being snapped up by investors and foreign buyers. That has prompted a number of consumers to start considering new homes.

Click on the image below to see a three-year breakout of homebuilder order growth:

Homebuilder orders per community are running at 2.3 per month, the highest first-quarter rate in four years. There’s still a long path ahead, however. Analysts at Barclays expect absorption rates to return to their long-term average of 3.5 sales per community per month over the next few years.

“So far, the order activity in the first quarter has lived up to our high expectations, making us comfortable with our outlook for 22% order growth in the second quarter,” they say.

With the noticeable exception of KB Home ($8.88 0.43%), sales growth at builders that have reported was quite strong, led by Meritage with a 36% increase. The order decline at KB Home is due to company-specific disruptions with its mortgage partner. Excluding it, the group’s orders are up an average of 26% annually.

Commentary on most of the conference calls indicates that trends strengthened in the quarter and that this pace continued in April.

Additionally, the recent strength in homebuilder orders might suggest that housing starts are set to elevate over the next few months. There is a close relationship between sales orders reported by builders and single-family housing starts reported in the following quarter.

Based on the orders announced this quarter, Barclays estimates that single-family housing starts over the next few months will average 493,000 after the 462,000 reported last month and 431,000 for the full year 2011.

U.S. home values edged up 0.5% from February to March, making it the largest monthly increase in six years, real estate data firm Zillow ($33.45 0%) said in its latest home value index.

The data arrived the same week as Standard & Poor’s/Case-Shiller national indices report.

The S&P Case-Shiller note, which measures real estate data further out, said home values in nine metro areas reached record lows. S&P reported that its 10-city composite index experienced an annual home-price decline of 3.6% in February, while the 20-city composite index declined 3.5% from a year earlier.  

Zillow, which evaluates home prices in 30 markets using its value index, reported that nineteen markets have either reached a bottom in home prices or are expected to hit bottom by year’s end. 

Optimism is spreading over markets like Phoenix and Miami-Ft. Lauderdale, with Zillow estimating home price increases of 6.5% and 5.6%, respectively, in the two cities over the next year or so.

Nationally, home prices are expected to remain flat over the next 12 months, with values reaching a bottom in late 2012 and falling approximately 0.4% from the first quarter of 2012 to the first period of 2013, Zillow said.  

Metro areas like Chicago and Atlanta, on the other hand, are expected to see home price declines in the 3.8-to-4.1% range over the next 12 months.

“For people who have been waiting to time their home purchase close to market bottom, it’s time to start shopping,” said Zillow chief economist Dr. Stan Humphries. “When the bottom will hit will vary by market, and it’s nearly impossible to time a purchase exactly right. But home prices are not the only part of the equation. Buyers also should take into account the possibility that rising mortgage rates could offset any further home value declines that may occur.”

Fannie Mae and Freddie Mac: the mere mention of them arouses passionate anger in many people.  Rightly so.  These two entities, which had taxpayer guarantees, ran their businesses as if they were privately owned.  Fannie and Freddie made huge bets on the housing market.  If it had been their money and their loss, then there would be no problem.  But their mistakes took taxpayers down as well.

What went wrong and what needs to happen?  Fannie Mae was born from the Great Depression in the 1930s to help bring mortgages to the ailing housing market of the time.  Fannie was a government corporation (not a private corporation) with the single mission of increasing liquidity by buying up soundly underwritten mortgages.  Because of Fannie and its government status, 30-year fixed rate mortgages became widely available.  Canada and Britain, for example, do not have long-term mortgages, or least not at low cost, because they do not have a Fannie equivalent with government guarantees.

Fannie, as a government corporation, like the current the Federal Reserve for example, never needed taxpayer funding because its revenue always covered its cost of operation.  Fannie was a very boring entity with very boring business model, always playing behind the scene of the housing market.

Then around 1970, Fannie was privatized.  Freddie was introduced as a government sponsored enterprise at around this time to add some competition to Fannie.  Even though the companies were private – with the right to pursue profits for shareholders – both still carried an implicit government backing in the marketplace, which we know in retrospect to have been an explicit government backing.  But the mangers of Fannie and Freddie, even though they had easy borrowing costs because of their government ties, thought of themselves as profit-maximizers and were slowly and increasingly gambling with taxpayers’ money.  During the good years, huge multi-million dollar bonus checks were paid out to managers.  For many years, the Washingtonian magazine, which carries light local news about local events and restaurant recommendations, named Fannie and Freddie as two of the best places to work in the Washington D.C. area, evidently suggesting great perks to employees.

Then the housing market crash happened.  And lo and behold – taxpayers were on the hook for massive losses.  Such entities, with perverse incentives and the ability to mete out private profits during good times and taxpayer losses during bad times, should never have been permitted.

Currently the discussion is now over the reform, restructuring or even elimination of Fannie and Freddie.  We should very mindful of what worked and what did not. What worked is the pre-1970s model as a government corporation that took a behind-the-scenes role.  What did not is the strange model of private profit with taxpayer backing.

If the eventual goal is to make Fannie and Freddie into pure private companies then we should expect higher mortgage rates, more short-term mortgages, and the occurrence of total market freezes in times of a financial market crisis.  Ask any commercial real estate practitioner about commercial mortgages in the past few years, mortgages which do not carry government backing.  Ask jumbo loan borrowers about the mortgage rate they pay because of the purely private jumbo mortgage market.  In addition, large ‘purely private’ financial institutions will always be considered too-big-to-fail and taxpayers will be asked to come to the rescue at some point in the future.

If the restructuring is to return these entities to their status as a government corporation then we will have steady mortgage liquidity, continuing availability of 30-year fixed rate mortgages, and probably no taxpayer bailout (as happened prior to the 1970s and like the Federal Reserve today).

It is my view that government can never produce interesting consumer products.  A government bureaucratic culture is too stifling for entrepreneurs and innovators.  The Apple iPhone, for example, simply could not be produced out of Washington.  However, there is something that government may be good at and that is producing a boring product.  There is next to nothing as boring as a 30-year fixed rate mortgage.  It requires no innovation.  If consumers have demonstrated good credit and are willing to stay well within their budget, then the 30-year fixed rate mortgage is one of the safest financial products on the market.  And because of the government corporation status, consumers will be able to tap mortgages at a lower rate than would be possible under a pure privatization model.  If the 30-year fixed rate mortgage was good for grandpa then it will be good for our grandkids in the future.

Though Fannie and Freddie still report headline financial losses because of legacy assets on the books from the housing bubble years, they have been raking in good internal profits on new mortgages underwritten for taxpayers since being taken over by the government in 2008.  Fannie and Freddie, in other words, have in essence acted as if they are a government corporation and good bottom-line results have been flowing out for both consumers and taxpayers.  That is why NAR is opposed to the pure privatization of Fannie and Freddie.