RealEstateEconomyWatch.com Insight and Intelligence on Residential Real Estate
Home prices will fall another 10 percent before they stabilize in the second half of next year, Roelof Slump, Managing Director of Structured Finance Experts for Fitch Ratings told investors Thursday.
Slump said the inventory of distressed properties remains high and is expected to cause further home price declines, plus negative macroeconomic trends are expected to continue to impact the mortgage market.
The brightest spot Slump saw in the housing picture is a decline in delinquencies, which are still high but have been improving this year. Although liquidations have slowed, he said that the pipeline of distressed borrowers remains high. With seven to eight million homes in the distressed inventory, the backlog will put pressure on prices and likely cause further price declines.
Consumer confidence is the key to casino online restoring demand in the wake of the expiration of the homebuyer tax credit, he said. Slump forecast an end of the price increases during the first half of the year that were generated by demand stimulated by the credit.
Investors can expect mortgages to continue to perform better than those during the boom period, he said A stable banking sector, improved loan underwriting, greater affordability for new borrowers, tighter regulations and improved
A 10% decline in home prices is quite an optimistic view since home prices are still not cheap from an historical perspective when compared to household incomes. Therefore, no “market bottom” can be called on the basis of “homes being cheap” – iot simply is not true regardless of how much housing prices have fallen. If the government would just leave the market alone home prices would fall to actual cheap levels and buyers would come back on their own (i.e. without the need for artificial and temporary government stimulus). The problem is that home prices need to decline another 20% to 30% before they can be declared “cheap” by any historical measure. See my blog post: The Truth About Home Prices. The graph in the post clearly shows that, based on 21+ year historic norms, as of July 2010 homes are priced a tiny bit above the historic price to income ratio. This means that if home prices were to rise from the July 2010 level the price to income ratio would be back in bubble territory. Separate from this blog post, I plotted the inverse of the monthly interest rates to see what correlation interest rates had with home prices since 1/1989. The results indicated correlations of 54%, 57% and 59% for 0, 3 and 6 month lag times. In a simple analysis, this means that at best interest rates account for 59% of the direction of home prices. Conversely, 41% of home prices are explained by something else – probably jobs and income. Given that interest rates are as low as they are ever going to be (and won’t remain this low for much longer), it is highly likely that the argument that low interest rates will help push home prices higher is invalid. The fact remains that over the next several years there are going to be millions of short sales, distress sales and forecloure sales, which, along with persistent high unemployment and poor income growth (below inflation, or even negative), will push home prices lower until they are truly affordable based on the real underlying economic conditions (i.e. absent the phony government housing market propping). In short, over the next several years there will still be a lot of misery for homeowners.
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