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December 28th, 2010

Grim outlook for home prices in 2011

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Price Reduced Since forecasting is more of an art than a science — be it predicting weather patterns or the future direction of home prices — I tend to use words and phrases like could, perhaps, is likely to, etc. in order to cover me just in case my own forecast is off.

Yet when you look at the headlines surrounding the release of the latest S&P/Case-Shiller Home Price Indices, bold predictions are in no short order. The top headline on MarketWatch.com this afternoon read: “S&P’s Blitzer broaches ‘double dip’ U.S. home prices retreat.”

The threat of an upcoming “double-dip” in home prices was not the outlook any of us were hoping for as we consider the direction, and perhaps recovery, of home prices heading into 2011:

“The double dip is almost here, as six cities set new lows for the period since the 2006 peaks,” said David M. Blitzer, chairman of the index committee at Standard & Poor’s. “There is no good news in October’s report. Home prices across the country continue to fall.”

Atlanta, Charlotte, Miami, Portland, Seattle and Tampa hit their lowest levels since home prices started to fall in 2006 and 2007.

“The tax incentives are over, and the national economy remained lackluster in October, the month covered by these data. Existing-home sales and housing starts have been reported for both October and November, and neither is giving any sense of optimism,” Blitzer added.

A December 22, 2010 MacroMarkets press release offers more of the same grim forecasts for 2011:

Terry Loebs, MacroMarkets managing director said, “The survey data we collected this year have consistently pointed to price stability in the intermediate- to long-term, which is reassuring in light of the volatility in actual home prices we have witnessed during the past few years. However, most experts foresee a longer road to recovery, and materially lower price performance in the coming years than they did just a few months ago.” Loebs illustrated the point, adding, “One can infer from the December data that the aggregate value of U.S. single-family homes four years from now will be roughly $1 trillion less than projected in May. Weak market fundamentals persist and continue to gnaw at wealth and confidence in these uncharted, post-bubble waters.”

Our friend and nationally-syndicated columnist Peter Miller offers up four reasons why buyers and sellers shouldn’t let the above forecasts of home prices dictate their decisions in the coming year:

First, national real estate averages are interesting but often not relevant to local buyers and sellers because individual markets do not necessarily follow national trends.

Second, there are local markets within metro areas with differing levels of real estate demand and supply — and thus differing pricing patterns.

Third, real estate is a nonhomogeneic commodity — a fancy term meaning that all properties are different. For any number of reasons — location, history, condition, size, zoning, etc. — a given property may be wildly in demand even in the midst of generally falling prices.  (Read more)

Cheap real estate prices are like low mortgage rates in the sense that a struggling economy fosters an environment of low rates and falling prices. In a recent edition of our Market Trends Newsletter, HSH VP Keith Gumbinger wrote that those who continue to wish for rock-bottom mortgage rates are in a sense wishing for a poorly-performing economy. Hoping real estate prices remain as low as they have been would also be wishing for a continued lag in housing’s overall recovery.

Even though there are some conflicting opinions on whether or not home prices will stabilize or even rise in 2011, there is some consensus of prices firming and rising post 2011.  The bottom line, as Miller points out, if you’re thinking about buying or selling in 2011, you can’t let your decision be dictated solely by national averages.

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One Response to “Grim outlook for home prices in 2011”

  1. Tweets that mention Grim outlook for home prices in 2011 | HSH Financial News Blog -- Topsy.com Says: December 28th, 2010 at 8:59 pm

    [...] This post was mentioned on Twitter by HSH Associates. HSH Associates said: Grim outlook for home prices in 2011: Since forecasting is more of an art than a science — be it predicting wea… http://bit.ly/ga5rMi [...]

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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