RealEstateEconomyWatch.com

Nationally, home prices will bottom this winter and begin to recover this spring due to improvements in inventories, and a decline in unemployment according to the latest forecast from First American CoreLogic.

The 45 largest metropolitan markets are expected to decline an average of another 4.2 percent before bottoming in March of 2010. The declines will be driven primarily by the large levels of foreclosures in these areas. However, improvement in both levels of inventories and unemployment are projected to prevail in the spring of next year, resulting in an average year-over-year appreciation of just under one percent by October of 2010 for these metropolitan markets.

National home prices, including distressed sales, declined by 7.8 percent in October 2009 compared to October 2008, according to First American CoreLogic’s LoanPerformance Home Price Index (HPI). This was an improvement over September’s year-over-year price decline of -9.5 percent. On a month-over-month basis, however, national home prices declined by -0.7 percent in October 2009 compared to September 2009.

Excluding distressed sales, year-over-year prices declined in October by -5.8 percent (in September non-distressed sales fell by -6.3 percent year-over-year). This again underscores the negative impact that distressed sales have on the HPI, as distressed sales continue to decline at a larger annual rate than non-distressed sales.

Cities in the Rust Belt states of Michigan and Ohio have replaced the Sun Belt cities of California, Nevada, Arizona and Florida as those areas for which the largest declines are predicted. Over the next six months, large declines in the HPI are predicted in Detroit (-12.7 percent), Warren-Troy-Farmington Hills (-11.4 percent), and Cleveland (-6.3 percent).

Cities that are projected to experience the strongest recovery in 2010 are primarily concentrated in the large urban areas of California: San Francisco (+5.7 percent), Los Angeles (+5.0 percent), San Diego (+4.7 percent) and Sacramento (+4.6 percent).

Including distressed transactions, the national HPI has fallen -30.1 percent from its peak in April 2006. Excluding distressed properties, the national HPI has fallen -21.5 percent from the same peak.

When distressed sales were included, Nevada (-24.3 percent) remained the top-ranked state for annual price depreciation, followed by Arizona (-17.3 percent), Florida (-15.5 percent), Michigan (-13.9 percent) and Idaho (-12.1 percent). Of these, Nevada, Florida and Michigan also showed month-over-month decreases in their HPI.

Excluding distressed sales, the worst five states for year-over-year price declines changes slightly. Nevada (-20.2 percent) still holds the top spot, followed by Arizona (-14.7 percent), Florida (-13.7 percent), West Virginia (-10.4 percent) and Washington (-9.4 percent).

“We are continuing to see improvements in the year-over-year home price change as prices have remained relatively stable since April,” said Mark Fleming, chief economist for First American CoreLogic. “The additional government support for the housing market has stimulated demand and restricted supply in 2009. How these government supports are removed in 2010 and the moderation of pending inventory and negative equity will be critical to the continued stability of the housing market,” he said.