If recent numbers from the S&P/Case-Shiller National Index are any indication, home prices could be on a track to slide down even further.
Despite a recent increase in home sales, spurred on mainly by the first-time home buyer tax credit, U.S. home prices fell 3.2 percent in the first quarter of 2010 from the fourth quarter of 2009. Although certain areas, such as California, saw prices climb as much as 7 percent from recent lows in cities such as San Diego, Los Angeles and San Francisco, others markets have seen real estate values continue to slide, including Las Vegas, Detroit, Chicago and New York City.
But it’s a number of troubling economic factors at play that can make the prospect of real estate values climbing again seem like a dim hope.
For starters, unemployment is at 9.9 percent nationally, and is expected to rise despite the recent addition of more jobs. Factor in that many of the employed are temporary or part-time workers, who are also looking for better lines of work, and it doesn’t appear the labor situation is going to improve significantly any time soon. Many experts are predicting unemployment will climb over 10 percent shortly, and a lot of workers aren’t receiving compensation that would enable them to be home buyers.
Also, the pace in which the economy has grown recently has slowed, and people are spending less. The overall growth of the economy trudged ahead at 3 percent in the first quarter of 2010, and was at a much slower pace than the 5.7 percent pace enjoyed in the fourth quarter of last year. Additionally, the savings rate rose to 3.6 percent in April, up from 3.1 percent in March.
But perhaps the most significant variable at play is the fact that there is still a glut of distressed homes on the market – particularly in areas such as Phoenix and Las Vegas – and the high volume of sales of foreclosures has dragged down home values. Furthermore, more than 4 million homeowners nationally are currently delinquent on their mortgage payments, and at risk of defaulting
When asked about the surplus of inventory, and how it may affect market conditions, Total Mortgage president John Walsh recently surmised, “This is a difficult question to answer, because nobody really knows the extent of the potential shadow inventory out there or how many houses are in danger of foreclosure. Loan modification efforts have temporarily modified many mortgages, but many of these mortgages could go back into default.”
Walsh added, “I can say with some certainty is if we experience an increase in the number of distressed properties hitting the market, housing prices will resume declining. This assumes interest rates and other market factors remain the same.”
Tell us what you think. Do you feel real estate prices are set to climb, or will the national average of home values continue to drop?
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Scott Norris
May 28, 2010 @ 7:24 pm
I live and work (as a Realtor) in SW Florida (Sarasota/Bradenton). This is or very near the epicenter of the crash. Unemployment is high and bank-owned and short sales account for about 45% of all sales. Price do seem to still be falling in general.
However, this big wave of shadow inventory seems to never come. The inventory of unsold homes has been falling steadily since 2007. We are now back to 2005 levels of inventory. The average shelf life for a bank-owned listing is about 60 days. The market here seems to have an insatiable appetite for foreclosed homes. We have about a 45 day supply on the market now.
Although I can point to no bright spot on the horizon from an economic or employment standpoint, as long as inventory levels continue to drop, things have got to be improving. Eventually inventory will get low enough such that prices level out. We cant be far away from that point if inventory is back to pre-boom levels.
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