Will Home Prices Double Dip in 2011?

For some time it has been my contention that home prices will continue to fall in 2011, mostly as a result of the massive supply of unsold homes in the United States and the continuing weak demand for these homes.  Unless there is a sudden change in the employment situation (which appears unlikely), demand will continue to be weak, and prices will decline.  The most recent Case-Shiller Home Price Index showed widespread price declines, with the majority of metropolitan areas showing year-over-year price declines.  A Zillow report in January showed that home values had declined for 53 consecutive months, and that on average, homes were worth 26 percent less than they were at the peak of the market in 2006, eclipsing losses in home equity seen during the Great Depression.  This morning I read several reports on home prices that I thought were worth further exploration.

According to a Reuters poll, 14 out of 26 economists surveyed predicted that home prices would bottom out in the second or third quarter of 2011.  Three of the economists said the low point would come in the first quarter of 2011, and one predicted we will see the bottom in 2014.  On average, the economists believed that home values would decline by another 3.3 percent.

In a Business Insider interview with Professor Robert Shiller, co-founder of the Case-Shiller report, attempted to ascertain where the housing market is going.  When asked if/how much further prices would fall, Shiller responded:

“The peak in the market was around 2006, it went down for three years and if it behaved the same way it had in the last cycle, it would continue going down for years more.”

Shiller said that the homebuyer tax credits temporarily distorted the market, and that there could be “further house price declines” in its absence.  Home prices have declined since the expiration of the first time home buyer credit last year.  The credit served to temporarily buoy the housing market by stripping demand from the last half of 2010 and accelerating it into the spring and summer months. After the stimulus was withdrawn, the market continued its downward trajectory.

In yet another research report (“Mortgage Applications Point to Near-Term Home Sales Weakness“), Goldman Sachs economist Sven Jari Stehn makes the case that sharp declines in mortgage applications (which have plunged in recent weeks) presage a dip in home values.  The report references another report from Peak Theories Reserach that argues we will see a 7 percent decline in home values in the coming months.

No matter who you choose to believe, there seems to be a pretty broad consensus that we will see declines in home values in the near future.  What do you think?  Will we see a double dip in 2011?  Let me know in the comments section below.