Believe it or not, some people are still predicting house price further drop in 2011, anywhere from 5% to 11% nation wide. House medium prices already went up this year about 9% in our town, located at metro west of Boston. The condo I bought for investment in 2008 for half the selling price in 2006 already started to increase (10%) according to town assessed value for tax purpose, and two units sold this year in our condo complex were also up 10%. I'm optimistic about the real estate investment at least in our local market. Land prices in New Mexico Albuquerque metro area where I invested have not seen any price increases yet. Maybe wait for a few more years.
ZT: Housing Outlook 2011: When Home Prices Will Head Up
Property values are still drifting down, but look for relief at the end of 2011.
Thelowest mortgage interest rates in almost 60 years, plus affordablehomes in cities where buyers had been priced out for years, should beturning the housing market around. But the market also labors undersome heavy burdens: a glut of foreclosures that are dragging down homeprices, high unemployment and tight credit. Sales fell off a cliffafter the home-buyer tax credit expired. And "foreclosure-gate" --legal squabbling about the process used to repossess many homes --postponed the sale of many foreclosed properties and struck yet anotherbody blow to confidence in the housing market.
Forthe four years beginning with the downturn in mid 2006, the medianprice of an existing home nationwide fell by 27%, or 7.7% annualized,according to Fiserv Case-Shiller, a home-price research firm. (At theworst of the decline, a year ago, prices had fallen 30%.) The medianhome now sells for $177,000, a bit more than what it would have fetchedin 2003.
Amongthe cities that Fiserv tracks, Merced, Calif., fared worst, with a 68%plunge in its median home price in the four years since the peak,followed closely by Modesto, Salinas and Stockton, Calif.; CapeCoral-Fort Myers, Fla.; and Detroit. Prices rose in just 12 cities --in upstate New York, Tennessee and Pennsylvania -- that missed the boomand plugged along at their usual slow pace of appreciation.
Stuck Underwater
Thehome-price plunge has left 23% of mortgage borrowers (out of 53.5million) underwater -- that is, they owe more on their mortgage thanthe market value of their home. Unless they can ante up the difference-- an average of $75,000, according to CoreLogic, which analyzesmortgage data -- they can't sell and they can't move. Their choices?Stick it out, ask the lender for permission to sell for less than theyowe (a short sale), or default.
In Norwood, Mass., south ofBoston, Al and Shannon Becker wish they could buy a bigger home, butthey're underwater by about $50,000. But the couple have a plan. Theybought their 1910 farmhouse, with three bedrooms and two baths, for$389,000 in 2005. By 2006, the property appraised for $423,000 and thecouple refinanced, taking cash out for home improvements. Now it'sworth $350,000. Still, they can afford to move -- and could come upwith the cash to pay off the mortgage. Instead, they are paying anextra $500 a month on the second mortgage they took out when theypurchased the house and anticipate the day when debt pay-down andhome-price growth will converge. Walk away? No. "That would beun-American, and my parents would kill me," says Al.
Theprice gains that would put the Beckers and the millions of homeownerslike them in the black have been tantalizingly out of reach, thoughglimmers of hope exist. Median home prices rose by 3.6% during the yearended June 30. Many California cities saw double-digit increases.Prices rose by at least 5% in many cities in California's beleagueredCentral Valley and Inland Empire (such as Riverside-San Bernardino), afew cities in Florida, and in Phoenix, Washington, D.C., andMinneapolis-St. Paul.
David Stiff, chief economist at FiservCase-Shiller, says those price increases, artificially propelled by thehome-buyer tax credit, weren't sustainable. The tax credit expired onApril 30. By June, sales had begun to slide, and in July they tanked.In late summer, sales of existing homes (including single-familyhouses, townhouses, condos and co-ops) began to climb again, but in theNational Association of Realtors' most recent report, they were still19% below a year ago. The lower the price tier, the greater the declinein sales, which reflected the pullback of first-time home buyers.
Althoughthis recovery may seem unendurably long, Stiff says that five to sevenyears is historically a "pretty standard time frame" for prices tostabilize after a large correction. But in the past, some regionssuffered longer than others. For example, Dallas home prices took 12years to recover after they fell from their peak in mid 1986. This timearound, however, the downturn hit more areas because themortgage-credit bubble was so widespread.
The Foreclosure Factor
Now,short sales and foreclosures are the driving force behind continuedprice declines. Throughout 2010, they accounted for about one-third ofhome sales, with an average price discount of 26%, according toRealtyTrac. Everyone agrees that more such sales are on the way, butestimates vary.
Moody'sAnalytics chief economist Mark Zandi says the foreclosure pipelineholds about four million loans that are delinquent by 90 days or more-- or headed that way -- and he thinks half of those will end up forsale. He thinks that delinquency rates have peaked and thatforeclosures will peak in 2011. He reckons that, given current supplyand demand, it will take two years to work through the excess inventory(which is concentrated in Florida, the Atlanta area, Arizona, Nevada,California's Central Valley, the Rust Belt and a few other spots in theMidwest). The longer it takes to put to rest the foreclosure-processingissue raised in October, the greater the backlog of properties -- andthe more they will suppress prices when they hit the market. But Zandisays foreclosure-gate will be resolved within a few months, not a fewquarters. Even so, foreclosure moratoriums have ensnared plenty ofbargain hunters, including Kerry Deland of St. Cloud, Fla. Deland movedto St. Cloud, near Orlando, in 2005. A kindergarten teacher, Delandquickly figured out that she couldn't afford to buy a home --especially one with enough land for her horse -- on her salary.
Afriend tipped her off to a property that appeared destined forforeclosure -- a 5-acre spread with a three-bedroom, two-bath housethat would have sold for $300,000 in 2005. Deland watched and waited.In July, the foreclosing lender listed the property for $114,000.Deland made two offers. The first time she lost out to a higher bidder,whose deal fell through. In late August, she made a winning bid of$111,900. Closing was scheduled for early November, but in OctoberDeland learned that the seller, Fannie Mae, had imposed a foreclosuremoratorium. Fortunately, it offered to extend Deland's contract untilDecember 5. "I've waited this long," she says. "I can wait some more."
A Glass Half-Full
Theworst-case scenario for home prices? Slow economic growth and highunemployment drive up the foreclosure numbers, which push down homeprices. Consumers refrain from spending, further dampening economicgrowth and job creation. Demand for homes decreases because would-bebuyers either don't have a job or don't have confidence that they'llstill have one in months to come. Confident buyers hold off becausethey expect further price declines.
ButZandi thinks the job market will begin to turn around by mid to late2011. And the Federal Reserve will ensure that mortgages staydirt-cheap at least until employment picks up again. Zandi says thatthe best reason for a bit of optimism is this: With few exceptions, themarket is fairly valued based on the relationship of home prices toincome and apartment rents. Some markets have actually becomeundervalued, which will attract more buyers and investors.
Bank of AmericaMerrill Lynch economist Michelle Meyer says that to frame the housingoutlook in a more optimistic light, "everything has to go asplanned."To buoy consumer confidence and put home sales on a strong,upward trajectory, job growth will have to be considerable and theunemployment rate clearly receding. Meyer agrees that we could see thatbegin to occur in the second half of 2011, but, she says, "it will be aslow process." Fiserv expects the housing market to finally hit bottomin mid 2011, with another 7% decline in the U.S. median home price forthe year ending June 30, 2011. The firm's forecasting model says thatprices are 90% of the way back to being in line with household incomes.Stiff says that the housing market is now "bouncing along the bottom,"with buyers and sellers creating price volatility as they try to matchbid and ask prices. The firm predicts that in many cities, prices willbegin to tick upward again in 2012.
