RealEstateEconomyWatch.com

Recent gains in home values are temporary and markets are poised for a 5 percent dip during the balance of 2010.

Even worse, prices will continue to bounce around for as long as three years to come.  That’s the latest scenario from Fiserv, Inc., a technology provider to the financial services industry that bases its forecast from an analysis of home price trends in more than 375 U.S. markets from the Fiserv Case-Shiller Indexes.

In the first quarter of 2010, U.S. single-family home prices rose an average of 2 percent over the year-ago quarter, the first year-over-year national gain since 2006. However, prices have fallen 28.7 percent since 2007.

“We expect to see prices bounce up and down around their lows for the next two to three years, especially in markets that experienced the largest home prices bubbles. This will result in alternating bouts of optimism and pessimism regarding the housing market recovery, similar to what we have seen for the economy as a whole. This will make it difficult to know exactly when the housing market has reached its bottom.,” said David Stiff, chief economist, Fiserv.

Despite the gain in the national average, prices were actually lower in 303 of the 384 metro areas compared to the 2009 first quarter. The overall increase was driven by strong price increases in markets such as the San Francisco Bay Area and Washington, D.C. However, prices in many markets continued to plummet, with double-digit drops in Detroit, Las Vegas and many small Florida markets, Fiserv said.

Ohio and Michigan, two states hit hard by the recession and loss of manufacturing jobs, are still seeing signs of price corrections, though not at the levels of the past couple of years, making housing very affordable across metro areas in these states.

Home prices in Utah, a market that has historically performed well, saw significant drops in home prices, with Provo, Salt Lake City and St. George seeing declines of 13.3 percent, 9.9 percent and 17.5 percent, respectively.

The largest home price increases were seen in the San Francisco Bay area, where San Jose home values increased 17.2 percent, and Washington, D.C., where home values increased 8.5 percent.

The largest year-over-year increases in home prices have occurred in the low-priced segments of metro area markets. There is indirect evidence that the recent rebound in home prices was driven primarily by the home buyer tax credits, which were most beneficial to households that purchased lower-priced homes.

Stiff warns there will be renewed downward pressure on home prices. “Although part of the rebound in the less expensive market segment is due to improving affordability, it is likely the rising sales volumes and prices of low-priced homes were mostly due to the tax credit. When the tax credit expires, sales activity for low-priced homes will drop causing a moderate decline in overall home prices.”