Home Prices Expected to Soften Through Next Spring

October 10, 2011 (Jeff Alan)

U.S. home prices in the current rolling quarter ending in September increased by 3.5 percent, down from 4.0 percent last month, indicating a softening of prices which is expected to continue through next spring according to Clear Capital’s Home Data Index (HDI).

Year-over-year, home prices were still 3.8 percent lower than at this time last year, with prices forecast to drop 1.6 percent over the next three months and 3.2 percent by the end of the first quarter of 2012.

The home price gains observed over the last several months were primarily due to seasonal forces as prices bounced back from the double dip that occurred in the first quarter of 2011. However, these gains are expected to halt as early as next month, reflecting the current slowdown in price growth.

All four regions posted quarterly gains for the third consecutive month with the largest price gains posted in the Midwest (7.2%), followed by the Northeast (3.5%), the South (3.2%), and the West (0.3%).

The price gains in the latest quarter were still not nearly large enough to offset last year’s price declines as all four regions continued to post year-over-year declines with the West suffering the largest decline (-6.1%), followed by the Midwest (-4.9%), the South (-3.2%), and the Northeast (-0.9%).

However, home prices in the last six months continued to show some signs of stabilizing as prices in the Northeast have increased 5.5 percent, in the Midwest prices are up 7.7 percent, in the South prices have increased 3.9 percent, and in the West prices have increased 0.6 percent.

“The September home price measures show continued slowing of the price gains we’ve seen this year, especially across the spring and summer months,“ said Dr. Alex Villacorta, Director of Research and Analytics at Clear Capital. “The housing market has yet to demonstrate the fundamentals necessary to overcome a seasonal slowdown over the next six months, which drives our projected 3.2 percent drop in national home prices through the first quarter of 2012.

The Real Estate Owned (REO) saturation rate improved nationally to 25.3 percent from 26.3 percent at the end of the previous quarter. The saturation rate is down 9.2 percentage points since May and down 15.6 percentage points from its peak in the first quarter of 2009

In the 15 highest performing markets, four of markets experienced year-over-year price gains. Pittsburgh posted a gain of 4.3 percent, Washington D.C. posted a 2.5 percent price gain, Honolulu posted a 1.1 percent price gain and Boston posted a gain of 0.5 percent. All four cities with the exception of Washington D.C. had REO saturation rates in the single digits.

Quarter-over-quarter, Cleveland (18.2%), New Orleans (11.2%), Chicago (10.4%) and Columbus (10.1%) all posted double digits increases in home prices.

Only eight markets posted price declines in the latest quarter led by Las Vegas (-1.7%), Tucson (-1.6%), Riverside CA (-1.5%), Los Angeles (-1.3%), San Diego (-1.2%), Rochester (-0.9%), Seattle (-0.4%), and San Jose (-0.2%). All areas but one are from the West region.

Clear Capital’s housing model forecasts a 3.2 percent decline in home prices over the next six months with the anticipation of the first year-over-year price increase since mid-2010 occurring by the end of the first quarter of 2012, however, if a second recessionary period were to occur, there is potential for a triple dip during that period, especially if there should be a major shock to the economy.

“The normally positive market forces of record low mortgage rates and near record lows in home prices are being offset by high unemployment rates and general consumer pessimism about the economic future. Until we experience a more stable economic environment, I expect home prices to remain relatively flat or slightly down for the foreseeable future,” added Villacorta.

Tags: Clear Capital, housing prices, price declines, REO, saturation rate, consumer demand, metropolitan areas

Source:
Clear Capital