Home Prices Forecast to Deflate More

Anchored by severe headwinds, including high unemployment, lack of equity in real estate, rising foreclosures, a tight mortgage market and the expiration of government programs home prices in the majority of U.S. markets will deflate more in 2010, according to the latest national forecast by Housing Predictor.

Price Reduced

The average price of a home is now forecast to deflate 8.5% for the year, a slight two-tenths of a percent improvement over the forecast issued in November, 2009 when the annual forecast for the year was first released. In large part, the better than expected level of housing deflation in the U.S. is dependent on a projected loosening of restrictive mortgage lending standards by bankers towards the end of the year, despite rising foreclosures.

Driven by the first time home buyers’ tax incentive and an expansion of the government program to move-up buyers, markets are experiencing a higher volume of sales, but little real pricing recovery is anticipated during the year. The excessive inventory of homes listed for sale and a shadow inventory of at least 2.8-million housing units will pressure markets through 2010. The shadow inventory is composed of homes and other residential properties that have either been foreclosed or are in the process of being foreclosed, lingering in a sort of housing limbo.

The Federal Reserve is scheduled to end its $1.4 trillion mortgage-back purchase program in March and the federal tax credit will expire April 30 th. The moves should act to reduce government intervention in markets, which are still fragile since Wall Street and bankers provided the most creative new instruments to sell mortgages in modern history. The actions triggered close to a global financial meltdown.

High unemployment, hovering around 10% on average nationally will make it more difficult for markets to move towards stabilizing especially in areas of the country where unemployment is at the highest levels since the Great Depression. Levels of joblessness in hard hit markets will make it difficult to achieve a healthy balance in areas that have been impacted heavily by high numbers of foreclosures. However, pent up buyer demand and the ferocious demand for home ownership will aid markets in making inroads towards stabilization.

Some stabilization has begun in parts of Florida, Michigan and California, but high unemployment will delay any real substantial recovery. The process is expected to take a number of years as markets encounter economic volatility, and a lack of coordinated government efforts to counter negative market influences.

There is no such thing as a jobless recovery in the housing market since home mortgage borrowers must be either employed or qualify for a loan through their own financial strength. Without growth in employment, housing markets will sluggishly move and stall waiting for the overall economy to recover before prices move higher in most places. High levels of unemployment present the greatest single obstacle to a recovery in the U.S. housing market.

Low mortgage rates kept in check by the Fed with a watchful eye towards inflation are keeping many markets active, but most sales activity is confined to home prices. A large part of a government estimated 19-million vacant homes in the U.S. will have to be absorbed by the market before stabilization is realized.

Following nearly a four year downturn in the worst impacted markets in the nation some areas of the country are experiencing higher prices, but the increases have been greatly dependent on government intervention, which is about to end.

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