RealEstateEconomyWatch.com

The unimaginable is now a possibility.  According to the latest forecast by one of the nation’s leading housing data providers, by the end of the first quarter next year, the nation’s average home prices could sink below the lowest levels reached earlier this last year, when prices set a new record low.

Clear Capital predicts U.S. home prices will drop 1.6 percent over the last three months of 2011, and 3.2 percent by the end of Q1 2012. This projected drop through Q1 2012 moves prices closer to Q1 2011 prices, the lowest since the downturn began.

“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 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,” said Villacorta. “Until we experience a more stable economic environment, I expect home prices to remain relatively flat or slightly down for the foreseeable future.”

Home prices gained 3.5 percent comparing the most current rolling quarter through September, to the previous one. Although prices are still up, the tide appears to be turning and these gains are expected to halt as early as next month. The resurgence in home price values over the last four months is best explained as the bounce back from the double dip observed in the first quarter of this year. As market prices move farther away from that low point, quarterly price changes will reflect the slowdown in price growth and yearly home price changes will show the stagnant environment that the market is in presently.

As the markets enter the fall season and brace for the traditionally slow winter season, our home price forecast models suggest an additional 1.6 percent decline in U.S. home prices over the last three months of 2011. If prices follow this expected trajectory, 2011 will have experienced a 1.0 percent decline for the calendar year and a 1.4 percent gain since the first dip in 2009. Barring any new shocks to the market, these modest price movements are anticipated to continue with little reason to expect big gains or losses through the next couple of years. Looking ahead to 2012, our pricing models project home prices will continue their modest slide with additional declines through the first quarter, said the Clear Capital forecast.

If the economy does fall back into its second recessionary period since 2006, there is strong potential for a triple-dip in the housing market. However, assuming prices remain on current trajectories, our models forecast U.S. home price changes of -3.2 percent over the next six months, and year-over-year price changes to eek out gains in the first quarter of 2012. In short, national prices may still see a positive yearly change since the rate of decline over the next six months is projected to be much slower than 7.7 percent decline national prices saw over the same period last year. This would be the first yearly gain reported since mid-2010 when buyers were capitalizing on the purchasing incentive of the home tax credit before it expired. Further, whereas the first “dip” in home prices occurred in the winter of 2009 and the “double dip” in winter of 2010, a dreaded “triple dip” is likely only to be flirted with, assuming there is not a major shock to the system in upcoming months, said Clear Capital.

Despite the strong rebound off winter’s double-dip in home prices, where prices hit their lowest point since the first quarter of 2009 when the downturn began, the overall housing market remains in a very tenuous state. Positive and negative forces have seemingly canceled each other out leaving prices virtually stagnant. Record low mortgage rates and a wide selection of affordable homes has yet to counteract the negative pull of distressed sales and stubbornly high unemployment. The net effect of these counter forces places the housing market in a suspended state with price movement limited to a standard seasonal ebb and flow.

In its latest price report, Clear Capital said that when rolling year-over-year numbers are considered, prices across the nation were down -3.8 percent from September 2010. While the nation is still struggling with year-over-year losses, one bit of good news is that the Midwest was able to recover from the -9.8 percent yearly decline posted last month with a decrease this month of -4.9 percent, putting it more in line with the rest of the nation.

REO saturation continues to improve across the country with only slightly more than one-quarter of homes (25.3 percent) selling as distressed. This rate is down 9.2 percentage points since May and down 15.6 percentage points since it peaked in Q1 2009. The current REO saturation rate is an encouraging sign that the summer buying season saw increased sales in the non-distressed segment, which helped support price growth.

When rolling year-over-year numbers are considered, prices across the nation were down -3.8 percent from September 2010. While the nation is still struggling with year-over-year losses, one bit of good news is that the Midwest was able to recover from the -9.8 percent yearly decline posted last month with a decrease this month of -4.9 percent, putting it more in line with the rest of the nation.

REO saturation continues to improve across the country with only slightly more than one-quarter of homes (25.3%) selling as distressed. This rate is down 9.2 percentage points since May and down 15.6 percentage points since it peaked in Q1 2009. The current REO saturation rate is an encouraging sign that the summer buying season saw increased sales in the non-distressed segment, which helped support price growth.

At the regional level, home prices in the West are sluggish with quarterly gains of a mere 0.3 percent over the period. Price movements in the Midwest and South are virtually unchanged from last month, when quarterly prices were up 7.3 percent and 3.5 percent, respectively. The quarterly 3.5 percent price gain experienced in the Northeast was a considerable cooling off from the 4.9 percent gains reported for the region last month.