U.S. Home Prices Have Further to Fall
Home values are expected to fall another 3.6% by next June, to a new low of 35% below the peak reached in early 2006.
According to Fiserv (NASDAQ:FISV), a financial analytics company, several factors will be acting against the U.S. housing market in the upcoming months, contributing to declining prices, including an increase in foreclosure activity, and sustained high unemployment.
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Should Fiserv’s prediction prove accurate, it would make the third time since the housing bubble burst that home prices hit a new record low. The first post-bubble bottom was hit in 2009, when prices fell to 31% below peak. The second came last winter, when prices were down 33%. Following the second trough, prices rallied as banks slowed down their processing of foreclosures following the robo-signing scandal.
However, now that the scandal is mostly resolved, lenders are picking up the pace of the foreclosure process, and pushing through foreclosures that had been backlogged. Earlier this month, RealtyTrac reported that foreclosure filings increased during the third quarter for the first time in three quarters, while new default notices were up 14%. There is also a “shadow inventory” of homes in foreclosure that have yet to go on the market, but could flood the market at any time. There are roughly 6 million homes currently in shadow inventory.
Fiserv has estimated which metro areas should expect to take the biggest hit. Naples, Florida, is expected to take the biggest hit, with a price drop of 18.9% by the end of next June. Home prices in the area are already down 61% from their peak.
Other cities expected to be hit hard include Las Vegas, which is expected to see home prices fall another 15.9% for a total loss of 66%; Riverside, California, which is projected to see prices fall another 14.8% (for a total loss of 61%); Miami, which is expected to decline by 13.2% (total loss of 57%), and Salinas, California, which could drop by another 13% (total loss of 66%).
However, Fiserv is expecting some metro areas to recover, including Madera, California, and Carson City, Nevada, both expected to gain 15.5% after having declined more than 50%. Fiserv expects home prices in Yuma, Arizona, to climb 9.5%; prices in Yuba City, California, to climb 9.2%; and prices in Farmington, New Mexico, to climb 8.3%.
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Fiserv expect that the housing market will begin to make its slow comeback in mid-2012, projecting that home prices will climb just 2.4% between June 2012 and June 2013, though a few metro areas are expected to do better. Thirty-one of Fiserv’s 385 markets are expected to tack on double-digit gains in the 12-month period. Another 71 markets are expected to post increases of 5% or more.
The markets recording the biggest increases are expected to be vacation or retirement communities, which took some of the biggest hits during the recession.