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Home prices likely to fall more, economists forecast
Tuesday, July 27, 2010 - 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 still more value in many metro areas during the
next year.
Parts of the country already pummeled by the housing crisis, like Las Vegas,
Phoenix and Miami, will be hit hardest. But even some places that have rebounded
or held up relatively well — including New York, Los Angeles and Washington, D.C.
— will suffer, too. The Tampa Bay area is expected to see a sizable drop, as well.
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. And as prices decline, potential home buyers stay on the
sidelines, slowing sales even more.
Earlier this year, analysts said they thought home prices had finally reached their
low point and were ready to start rising slowly in most areas of the country. Now,
they think the actual 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 LLC.
That's more pessimistic than in May, when the consensus was for prices to be nearly
flat. Other, 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 that other areas — New York, Los Angeles, San Diego, San
Francisco, Denver, Detroit, Cleveland, Minneapolis, Tampa and Washington D.C. —
will see declines of 2 to 8 percent by next July.
Why further price drops for already hard-hit areas, as well as in healthier markets
like New York and Los Angeles?
There's already a glut of homes left in each area by the real estate bust, and more
foreclosures are expected as Americans fall behind on mortgage payments.
Foreclosures add to the supply of homes on the market, bringing down prices.
On top of that, so-called short sales, which happen when lenders let homeowners sell
their houses for less than what they owe on their mortgages, are rising. They can
drive down the value of neighboring homes, too.
It could be a decade before the average price nationally reaches the peak it hit four
summers ago, said 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.