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Analysts say there will be no property price increase in the US for several years

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Analysts say there will be no property price increase in the US for several years

Wednesday, 03 March 2010

US property market blow

The rate at which residential property prices are dropping in the US may be slowly coming to a halt across the country but are unlikely to rise in the near future, according to analysts.

Experts at Barclays Capital are predicting that there is only a 4 or 5% dip in prices left to go before stabilization. But the rate of appreciation on the back side of that bottoming out is likely to muddle along for the next few years, they say in a new report.

Their conclusion is based on expected aftershocks of the ‘smoothed-out’ housing supply model, where millions of potential foreclosures are being averted temporarily with government backed programmes or by suppliers slowing the rate in which foreclosures hit the market.

On a more positive side, they also say that this effort actually prevented property prices from falling considerably more than they did.

But the smoothed-out method, while successful on the supply side, is coming at a cost. ‘The overhang of distressed inventory is a huge negative technical. It suggests that any price rise will probably be met by increased distressed sales,’ they say in their Residential Credit Strategy report.

‘Meanwhile, home prices do seem a little cheap, using fundamental metrics like price/rent and price/income ratios, but not extremely so. Thus, a meaningful rise in prices would need big changes on both the technical and fundamental fronts,’ the report continues.

Indeed property prices fell only slightly in December, according to Standard & Poor’s Case Shiller latest US National Home Price Index. However, it is the recent drop in new home sales, down 11.2% from December to January, that the analysts find disappointing.

And in added response to claims that housing is becoming more and more affordable in the US, the report adds that ‘affordability indices are not good predictors of future moves in home prices’.

Meanwhile the latest report from the National Association of Realtors shows that sales of existing properties plummeted in January, down 7.2% from December. Although sales are still 11.5% above the January 2009 level.

‘Most of the completed deals in January were based on contracts in November and December. People who got into the market after the home buyer tax credit was extended in November have only recently started to offer contracts, so it will take a couple months to close those sales. Still, the latest monthly sales decline is not encouraging and raises concern about the strength of a recovery,’ said NAR chief economist Lawrence Yun.

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Residential foreclosure numbers falling in the United States

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The number of foreclosures in the United States is down marginally from a year ago and has levelled off over the first four months of 2012, according to the latest figures from analysts CoreLogic.

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