Further Home Price Declines Forecast Despite Recent Gains

Contrary to popular opinion, home prices have not bottomed out, according to the financial information and analysis firm Fiserv.

The firm projects median home prices will drop 11.3 percent by June 30 of next year. It predicts declines in 342 of 381 markets over the next year. Only then will prices stabilize, and rise 3.6 percent in 2011, the firm predicts.

The S&P/Case-Shiller Home Price Index had seemed to indicate prices had already stabilized. The composite index of 20 cities rose in May, June, and July, and home prices gained 3.6 percent nationwide.

But it now looks like that may have been a blip due to the impact of the tax credit for first-time homebuyers, analysts said. By the end of November, when it expires, the credit will have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break.

In Fiserv’s latest forecast, the markets that will have the steepest declines are those with the greatest number of foreclosures.  [Are these new opportunities for real estate investors?]

Miami, for instance, is expected to lead the decline and drop another 30 percent by next June, after falling 48 percent since the top of the market in July 2006. The median home price could reach $142,000 by June 2011.

Orlando is the second-worst market, with an expected decline of a further 27 percent. Outside of Florida, big losers are Las Vegas, with a forecast drop of 24 percent, and Phoenix, with a loss of 23 percent. Both of these markets have already seen prices decline about 54 percent.

Smaller markets will also get hit. In Hanford, California, prices will fall an estimated 26.9 percent and continue falling 9.5 percent in 2011, Fiserv says. In Naples, Florida, prices are expected to decline 26.8 percent and then stabilize.

Fiserv has gained considerable credibility because it anticipated the rapid decline in home prices over the past few years, though it underestimated the scope of the fall.

In its current forecast, Fiserv sees some markets bucking the trend. Six markets will remain flat, and 33 will register gains. The biggest gainer will be the Kennewick, Washington metro area, where home prices are expected to tack on another 3.4 percent by next June after gaining 8.9 percent over the past three years. In Fairbanks, Alaska, prices are forecast to rise 2.5 percent, and in Anchorage, 2.1 percent.

New York City, the biggest metro area, will underperform the country as a whole over the next two years, Fiserv said. Prices are expected to fall another 17.4 percent by June, after already falling 21.7 percent to a median of $375,000.

In the nation’s second largest market, Los Angeles, prices have fallen 43.3 percent since June 2006 to a median price of $313,000. Prices could fall another 20.2 percent by June, Fiserv says.

Chicago prices, which have fallen 25.2 percent to a median price of $227,000, will drop only 4.1 percent over the next 12 months and then start to climb. Detroit has the lowest home prices in the country at $50,000, having dropped 51.7 percent. Prices there are forecast to fall another 9.1 percent and then flatten out.