Monday, January 31, 2011

Real Estate Outlook: Home Prices Decline

I guess I we could all see this one coming. The experts having been saying as much for months now. But still, when it actually happens, it is still a bit un-nerving, especially for us realtors. But I have to say, if this isn't the time to buy, I don't when is.

By Carla Hill

The latest S&P/Case-Shiller Home Price index reveals that home prices, unfortunately, are still down and weakening.

According to Standard & Poor's, "The 10-City Composite was down 0.4% and the 20-City Composite fell 1.6% from their November 2009 levels. Home prices fell in 19 of 20 MSAs and both Composites in November from their October levels."

"With these numbers more analysts will be calling for a double-dip in home prices. ... The series are now only 4.8% and 3.3% above their April 2009 lows, suggesting that a double-dip could be confirmed before Spring."

Of course, many homeowners may feel that the recession never ended in the first place.
How much have some key cities' home prices fallen? From peak levels in 2006, Las Vegas is down 57.2%, Phoenix is down 53.9%, and Miami has dropped by 48.8% from its peak.

This is beyond worrisome for homeowners who bought at the top of the market, and now owe double what their home is worth. In response to price declines, both existing-home sales and pending sales are on the rise. This could signal that buyers feel we are nearing the bottom of the market and are now venturing out once again.

What are prices looking like across the nation? The national median existing-home price for all housing types was $168,800 in December, which is 1.0 percent below December 2009. Distressed homes rose to a 36 percent market share in December from 33 percent in November, and 32 percent in December 2009.

Existing-home sales rose sharply in December, when sales increased for the fifth time in the past six months, according to the National Association of REALTORS®.

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said buyers are indeed responding to high levels of affordability. "Historically low mortgage interest rates, stable home prices, and pent-up demand are drawing home buyers into the market. Recent home buyers have been successful with very low default rates, given the outstanding performance for loans originated in 2009 and 2010," he says.

Lawrence Yun, NAR chief economist, feels the past six months have shown a recovery and that projections for 2011 levels are "getting much closer to an adequate, sustainable level."
In pending sales, the latest NAR index indicates a 2.0 percent increase over November. This is positive news despite the index being 4.2 percent below year ago levels.

"In the past two years, home buyers have been very successful, with super-low loan default rates, partly because of stable home prices during that time. That trend is likely to continue in 2011 as long as there is sufficient demand to absorb inventory," Yun said. "The latest pending sales gain suggests activity is very close to a sustainable, healthy volume of a mid-5 million total annual home sales. However, sales above 6 million, as occurred during the bubble years, is highly unlikely this year."

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