MacroMarkets LLC conducted a survey of 106 economists and found that 56% of them expected home prices to decline by year’s end. This is an increase from the 40% that expected declines in a prior survey only one month ago. Even though the federal government has extended its $8,000 federal tax credit for another 3 months there seems to be little doubt within the industry that once the federal incentive programs end there will be a decline in home prices due to the stall in purchasing.
Chief economist for Realtors, Lawrence Yun estimated that nationally 10% to 15% fewer contracts were signed in May. As bad as those numbers sound it is still representative of a 19% increase from last year at this time. There is a reoccurring theme that presents itself when talking to market insiders and that is on average home prices are moving but it is hard to make a valued forecast for the immediate future due to the availability of federal assistance programs that are driving sales and home prices.
There are several factors that have to be addressed before any real recovery can be sustained. The market is bloated with foreclosure inventories, and unemployment rates are still well above desirable levels. It is going to take time for banks and lending institutions to off load the mass of homes that they had to take back. Returning the mass of unemployed back to work is going to take even longer. When the unemployment rates reached double digits the damage it created was not focused only on the foreclosure of their homes, but it also destroyed the borrower’s credit, which for most individuals removes the opportunity to re-purchase another home any time soon. The availability of qualified buyers is factor that greatly affects the housing market.
Of those surveyed the general consensus was a decline of approximately 1.4% in home prices this year according to the Case/Shiller national index. The majority of the economists agreed that there would be a 1.3% increase in 2011, and 2.7% in 2012.
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Looks like it will be a long slow road to recovery. I live in a very nice and well established Chicago neighborhood and we still have 3 large housed on our street that have been half built for 2 years. I think there is a lot of hidden inventory.
Paul, I agree. I don’t foresee any sustainable stability in the near future and with a huge shadow inventory looming, the possibility of decreases in prices is very real.
Thats pretty depressing news but I suppose you give a very strong economic reason why this is likely to happen.
Surely there will areas where demand is greater and maybe you wont see any price reductions at all which is very much what we currently have in Spain and its also dictated by the type of property you want to buy
Hi Paul, thankyou for this detailed information.
Definitely the mass foreclosures has a significant impact on supply and demand.
In alot of ways the slowdown is much appreciated for families living near metro areas where the cost of buying a home has swamped the family in debt, or is simply unreachable for that family. This puts tremendous stress on families who often have stable jobs in those metros.
I think will depend on how the economy reacts. If jobless starts to fall, I think home sales will increase. Should that happen, then prices will not fall, they’ll remain steady or go up.
I truly believe some locations don’t lose their market value regardless of the ‘market’ condition. These kind of properties are what one should be interested in. The declining house prices, start with a domino effect where one person decides to sell his property at a cheaper than market rate causing others to slash theirs too.
For me that i want to buy a home this is good news, but I can only hope that the prices will reach an equilibrium between their value and price. Somehow we all need to get by.
I think there have been some positives out of the tax credit, but many have predicted that we are only delaying the problem. I do agree with Chas that the unemployment rate can affect this and would represent a wild card.
I think the employment rate is a huge factor in the cost of housing/home sales. It’s hard to make the leap of buying a house when you don’t know if you’re going to be laid off the next month. Unstable lifestyles just equate to lower sales of big money purchases.
I would be very surprised if home prices here in Austin, TX went any lower than what they are. We have managed to stay pretty flat in comparison to other areas where it’s been a roller coaster for the last few months.
Not that it is a good thing, but hopefully we are nearing rock bottom, and things bounce back nicely.
Well you may well be at rock bottom which we hit in Marbella this year however the bounce back is going long and slow.