USA Housing outlook for 2010
This year the housing market showed signs of life. But with banks releasing foreclosures en masse in early 2010 and unemployment climbing, prices have further to fall.
In a depressed year for the US economy, the housing market has offered some positives, property sales have improved, recently hitting their highest level in more than two years. There's been talk of bidding wars resuming in places like Silicon Valley and New York City. And dinner party talk everywhere has started to turn to discussion of market bottom now being reached . So at least where the property markets concerned, things are looking better -- right?
Not according to Mark Zandi the chief economist of Moody's Economy.com, Zandi has some sobering predictions: real estate prices are going to fall 5% to 10% more -- and over 30% in places like Miami -- between now and this time next year. Then they might start turning around. (Emphasis on "might.") At the top of Zandi's concerns are the level of foreclosures -- specifically, the millions of loans that are in foreclosure or headed there that can't or won't be modified. According to RealtyTrac, nearly 2 million housing units in the U.S.A are in foreclosure or bank-owned, and millions more are likely to be added to them. Zandi estimates that 2.4 million homes enter into foreclosure next year. He predicts banks will start putting those properties on the market more aggressively during the first half of the year, resulting in a surge of cut price inventory that will have the effect of forcing prices down even further.
It would be one thing if banks could sell into a real estate market with adequate demand but he has a second concern: record high levels of unemployment. October's 10.2% figure was higher than what most economists forecast for the peak. A depressed job market, especially one this depressed, means potential buyers don't have money to pour into new homes or the confidence that they'll be able to hang on to their jobs and pay the mortgage on their existing home. Finally he is concerned politicians will pull their support from the property market prematurely.
Aggressive government policies, such as the recently extended first-time-homebuyer tax credit and the Fed's purchase of mortgage-backed securities, have been propping up the market. The purchase plan is set to expire in March 2010, which Zandi says could increase mortgage rates up as much as a full percentage point. "That bumps up the cost of buying a home, and in this fragile market people won't buy,"
All these variables are factored into Economy.com's housing price outlook for 2010 -- as are local figures for income, population, interest rates, and foreclosures. Results are divided into 100 metropolitan areas. (Last year the predictions were fairly accurate, forecasting a 14.5% decline in 2009; the actual figure is likely to came in around --13.2%.) As the sea of red below shows, the figures are negative across the country.
The weakest states are Florida, California, Nevada, and Arizona where foreclosures are highest and likely to rise. The worst performing area is Miami, where the 2009 median home price of $183,530 is expected to fall 33%. The good news? "It's clear we're closer to the end of this crash than the beginning," says Zandi.
Property is more affordable, and construction is still low, so sales will eat up excess inventory. "We're moving in the right direction, and that's reason for optimism," he says. Another cause for optimism: He says there's almost zero possibility of another U.S. housing bubble anytime soon.
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CNN Money - 9/12/09
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