Home prices ready for re­bound? Not quite, an­a­lysts say

Large in­ven­to­ries, fore­clo­sures in­di­cate big cities might still be hurt­ing this time next year

Austin American-Statesman - - BUSINESS - By Alan Zi­bel

WASHINGTON — Thought the hous­ing cri­sis was over? Not quite.

De­spite four years of fall­ing prices and re­cent signs that they were fi­nally bot­tom­ing out, homes are ex­pected to lose even more value in many metro ar­eas dur­ing the next year.

Parts of the coun­try al­ready pum­meled by the hous­ing cri­sis in­clud­ing Las Ve­gas, Phoenix and Mi­ami will be hit hard­est. But even some places that have re­bounded or held up rel­a­tively well — New York, Los An­ge­les and Washington among them — will suf­fer, too.

That’s the con­clu­sion of econ­o­mists who have been re­duc­ing their es­ti­mates for home prices as the out­look for the eco­nomic re­cov­ery has dark­ened.

The num­ber of homes for sale or headed for fore­clo­sure is so high that they think prices will be even lower by next July.

Be­cause hous­ing is such an im­por­tant en­gine of the econ­omy, lower prices could dim the re­cov­ery. When home val­ues fall and peo­ple have less eq­uity, they tend to cut back on spend­ing. As prices de­cline, po­ten­tial home­buy­ers stay on the side­lines, slow­ing sales even more.

Ear­lier this year, an­a­lysts said they thought home prices had reached their low point and were ready to start ris­ing slowly in most ar­eas. Now, they think the bot­tom could be nearly a year away.

The av­er­age home price in the Stan­dard & Poor’s Case-Shiller in­dex of 20 big U.S. cities is fore­cast to drop nearly 2 per­cent this year from a year ear­lier, ac­cord­ing to the av­er­age es­ti­mate of more than 100 econ­o­mists polled this month by MacroMar­kets.

That’s more pes­simistic than in May, when Lat­est tax fig­ures show most Cen­tral Texas prop­erty val­ues stay flat or drop, Page One the con­sen­sus was for prices to be nearly flat. More bear­ish an­a­lysts think prices will sink 10 per­cent or more.

Price drops of more than 10 per­cent are ex­pected in the Phoenix, Mi­ami and Las Ve­gas ar­eas dur­ing the next year, ac­cord­ing to Moody’s An­a­lyt­ics. Those ar­eas have al­ready been scorched by 50 per­cent de­clines in home val­ues.

Moody’s pre­dicts de­clines of 2 to 8 per­cent by next July in New York; Los An­ge­les; San Diego; San Fran­cisco; Den­ver; Detroit; Cleve­land; Minneapolis; Tampa, Fla.; and Washington.

Why fur­ther price drops for al­ready-hard-hit ar­eas as well as those health­ier mar­kets?

There’s al­ready a glut of homes in each area, and more fore­clo­sures are ex­pected as Ameri-

cans fall be­hind on mort­gage pay­ments. Fore­clo­sures add to the sup­ply of homes on the mar­ket, bring­ing down prices.

Con­tribut­ing to the prob­lem is an econ­omy grap­pling with high un­em­ploy­ment, rel­a­tively flat pay and tight­ened credit, all work­ing to limit the num­ber of peo­ple buy­ing homes.

It could be a decade be­fore the av­er­age price na­tion­ally reaches the peak it hit four sum­mers ago, says Celia Chen, chief hous­ing econ­o­mist at Moody’s. Even when they do re­sume ris­ing, prices may not out­pace in­fla­tion.

The me­dian price peaked at $230,300 in July 2006 be­fore tum­bling 28 per­cent to a low of $164,700 in Jan­uary 2009, ac­cord­ing to the Na­tional As­so­ci­a­tion of Real­tors. The me­dian has since risen to $183,700.

Na­tion­ally, about 7.1 mil­lion home­own­ers — more than 13 per­cent of house­holds with a mort­gage — have missed at least one pay­ment or are in fore­clo­sure, ac­cord­ing to data provider Lender Pro­cess­ing Ser­vices Inc.

“Even when de­mand picks up, prices aren’t likely to budge all that much,” said Mark Vit­ner, se­nior econ­o­mist with Wells Fargo Se­cu­ri­ties.

Moody’s fore­casts flat or only slightly lower prices over the next year in At­lanta; Chicago; Bos­ton; Dal­las; and Port­land, Ore. Seat­tle and Char­lotte, N.C., are ex­pected to en­joy slight price in­creases. In those ar­eas, the sup­ply of fore­clo­sure homes is smaller, and the lo­cal economies are far­ing bet­ter.

Sales of new homes jumped last month, but it still was the sec­ond-weak­est month in the 47 years records have been kept, the Com­merce Depart­ment said Mon­day. Sales for April and March were also re­vised down­ward.

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