US property prices likely to keep falling until end of 2011, according to analysts
|Thursday, 18 November 2010|
Property investors and those looking to buy a holiday home in the US can look forward to bargain prices for some time to come, according to analysts.
Standard & Poor's analysts believe residential real estate prices will drop between 7% and 10% through 2011, erasing any improvements prices have recently made. And Fiserv, a financial services technology provider predicts a 7% fall before prices stabilise towards the end of next year.
The analysts point out that sales are plummeting and can’t be expected to revive over the winter months and this lack of demand will mean inventories increase while prices continue to fall.
Indeed the latest index to be published shows that national property prices fell for the second straight month in September after rising, albeit slightly in some cases, in the first six months of 2010.
‘We’re continuing to see price declines across the board with all but seven states seeing a decrease in home prices. This continued and widespread decline will put further pressure on negative equity and stall the housing recovery,’ said Mark Fleming, chief economist for CoreLogic.
The CoreLogic index shows that five hardest hit states in September include Idaho, which saw prices drop 14%, Alabama 9%, Mississippi 8.3%, Florida 7.7%, and New Mexico 7.5%.
Five states experienced increases of less than 1% in home prices for September, Maine was down 0.38%, Alaska 0.44%, Virginia 0.77%, Nebraska 0.78% and California 0.86%. North Dakota saw prices increase by 1.73% and New York by 2.67%.
Low mortgage rates will likely continue to encourage refinancing, but their influence on home buying activities has been limited due to the weak housing market and a lack of demand,’ said S&P credit analyst Erkan Erturk.
According to the S&P/Case-Shiller Home Price Index, prices did increase 1.7’% in its 20 city index and 2.6% in its 10 city index. But in August alone, those indices fell 0.2% and 0.1% respectively. Home prices declined in 15 of the 20 metro areas.
Prices will continue to be pressed down as long as the market works through a high number of distressed properties and recent foreclosure moratoriums from major lenders because of documentation problems have only delayed this work, Erturk pointed out.
Nationally, property prices increased an average 3.6% in the second quarter of 2010 from a year ago, according to the Fiserv Case-Shiller Indexes, which is generated by the technology company using data from the Federal Housing Finance Agency. The increases came from strong performances in higher priced markets such as San Diego, Washington, and the San Francisco Bay Area.
However, on a micro level prices actually fell in 70% of the 384 metro areas. Markets such as Detroit in Michigan, Boise in Idaho and Reno in Nevada, along with smaller markets in Florida and Oregon saw double digit drops.
Fiserv chief economist David Stiff believes that the largest declines will come in those markets that had strong spring and summer price gains. ‘This is because the home buyer tax credit delayed the correction in home prices that is necessary to return housing affordability to its pre-bubble levels,’ he explained.
An example is Phoenix, Arizona, where home prices increased 5.5% in the second quarter from a year ago. But according to Fiserv analysis, prices should drop another 16% over the next year. Prices are expected to drop 9.4% in Florida, 11.5% in Arizona and another 12.4% in Nevada.
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