Clear Capital Forecasts More Price Declines this Year

Economic consulting firm Clear Capital reported prices nationally have decreased by 3.2 percent in the first six months of 2011 and are forecast to drop another 2.4 percent in the second half of 2011.

The new forecast updates the firm’s December prediction that prices would fall 3.7 percent in all of 2011 after falling 4.1 percent in 2010, the firm reported today. But individual markets will vary widely.

In the second quarter home prices gained 0.9 percent after nine months of decline. Halfway through 2011, the U.S. REO saturation rate remains at 31.3 percent compared to the 33.1 percent reported at the end of Q1. This number, while historically very high, is clearly trending slightly downward with absorption of REO property.

Only five U.S. markets are forecast to produce home price gains in the second half of 2011 including: Washington, D.C., New York, Orlando, Dallas, and San Francisco.

“At the mid-point of the year, it’s promising to see the overall market shake off the string of declines observed since late last year, especially in light of significant challenges for the industry,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital. “However, we have yet to see the burst in consumer demand to avoid posting a net loss in national prices for the year.

“While most individual markets are also projected to post losses for the year, it is clear prices have begun to level off and are not exhibiting as much volatility as we’ve seen since the downturn began,” added Villacorta.

The first half of 2011 continued the price declines experienced across much of the U.S. in 2010 as prices continued to face pressure from high unemployment and REO saturation rates above 31 percent. Home prices for the first half of this year have also been affected by a reversal of price gains from the 2009 and 2010 homebuyer tax credits. The wild spikes in price trends experienced in 2010 have given way to more gradual trends in 2011. Declines of 3.2 percent through the first half of 2011 contributed to the overall 8.0 percent decline since June 2010.

Prices were also pushed downward 4.1 percent in the first quarter of 2011 due to the slow winter home buying season creating the “double dip” in April 2011, and breaking through the previous low mark set in Q1 2009. Since then, U.S. price declines have seen modest gains, and while varying according to each local market, it is unlikely national home prices have reached a true and sustainable bottom.

The future outlook continues to point to a fragile housing market. However, the aforementioned quarterly increase of 0.9 percent is an encouraging sign that the markets are capable of positive price growth despite the first quarter lows and the continued economic and foreclosure pressures. Even with the recent gain in quarterly home prices, current price levels effectively match the levels seen in Q1 2009, and hover near the levels last seen in mid 2000.