Home Prices Could Drop For The Next Three Years: Report

Thinking about buying a home? You might want to proceed cautiously. The housing market may continue to decline, potentially for at least three more years, Bloomberg reports today.

There is some evidence that a double-dip in housing may be looming. According to data released by CoreLogic today home prices remained flat in July compared to the same period last year, the first time in five months without a year-over-year increase. Compared to June of this year, prices in July declined 0.6 percent.

But the housing market's biggest concern is an excess of housing inventory, which continues to grow as mortgage-holders default and more homes hit the anemic market Bloomberg estimates that 12 million homes will flood the market over the next three years, as lenders put the "shadow inventory," or homes with delinquent loans, up for sale.

Citing analysis from Moody's, Fannie Mae, Barclays and Morgan Stanley, Bloomberg reports the housing market has already tanked 28 percent since 2006. It's been a fairly dismal summer for housing, as July saw a 25.5 percent drop in existing sales from the same period in 2009, according to the National Association of Realtors. It was the lowest number of existing home sales since 1995.

As long as prices continue to fall, the conventional wisdom goes, sales won't rebound, as potential buyers wait on the sidelines. Making matters worse, a whiff of recovery could send prices right back down. A survey by online real estate search company Zillow shows that 3.8 million homes, or five percent of the nation's total, would hit the market within six months of any housing market improvement, as their owners try to take advantage of higher prices.

The government has been struggling to prop up the housing market with strategies such as tax credits, loans and low interest rates. The debate in recent weeks has been whether it would benefit the country more for the government to do nothing -- to allow the market to tank and then figure out its own recovery.

As the New York Times notes, the government faces a choice between helping current homeowners or future ones.

Meanwhile, web real estate search company Trulia has the latest statistics for individual cities' price drops. Ranked based on the percent of home sellers which reduced their prices in August, the top five are:

1. Minneapolis, 43 percent of homes
2. Milwaukee, 40 percent of homes
3. Phoenix, 39 percent drop homes
4. Mesa, Ariz., 37 percent of homes
5. Albuquerque, New Mexico, 35 percent of homes

Comments

[parags20]

05:33 AM on 09/20/2010

A shortage of available properties was one of the key factors that supported the housing market during 2009, with the mis-match between supply and demand pushing prices up.
The sicknesses of the property market are excess liquidity, low real interest rates and the lack of investment alternatives. These structural problems are causing constant worry of a bubble and unless they are resolved, everything else is just a band-aid
http://www.financemetrics.com/real-estate-prices-to-fall-in-2010/

[NewMyGo]

01:59 AM on 09/17/2010

It's a good message!

[laconic93]

09:51 PM on 09/16/2010

Also remeber that the high end market will be dead much longer. Think goverment backed housing loans only go up to 417,000 not sure on that number. What that means is that banks will not loan to anyone unless they can sell it to the goverment ie taxpayer. Banks all ready know that housing prices are going to drop another 30 to 40 percent so why would they loan their money at 4 percent? Look at this link.
http://www.businessinsider.com/banks-cant-hold-back-highend-mortgage-repos-for-long-2010-7
Banks arent even releasing houses over 300,000 to the market because they know they cant sell it. Not because no one wants to buy it, it's because no one can get a loan. The high end real estate market is going to be a blood bath.

[InfidelSix]

09:37 PM on 09/16/2010

Thank
You
Bar-
Ney
Frank

[IndyFem]

07:29 PM on 09/16/2010

Do not forget that the Banks who made the loans....that destroyed our economy....got paid at the peak of the market. They are doing just fine....we are the ones suffering

[Chris tibbs]

11:44 PM on 09/18/2010

do you understand how a mortgage works??? banks LEND the money.... so that means they paid the sellers all this money... and now all these people getting foreclosed on arent paying that money back..... thank your local, 'making homes affordable' congressman, an unrealistic expansion of house prices, and all the baby boomers starting to croak as well

[Kahill]

04:17 PM on 09/16/2010

With no significant economic recovery in sight for the next 3 years, home prices will have to keep dropping for much longer that that!

[thalius]

04:01 PM on 09/16/2010

the housing market is correcting itself. in my area new jersey..little starter homes (cape cod's )were going for 700-800 thousand. that was ludicrous! at that point you knew everyone had flown over trhe cuckoo's nest.
im not saying that this takes away from the rough times we are having now, but we all had a hand in helpipng this disater along. from the banks selling toxic loans, to those getting loans that they knew they couldnt afford. to wanting more house then u actually needed. to using you home as a piggy bank.. etc

[RedRat]

02:17 PM on 09/16/2010

The problem is that the housing market is restructuring, painfully, to match the economic reality of the country becoming a service sector economy. Burger flippers, clerks, grocery store baggers, cannot afford the McMansions that are on the market. Service sector jobs pay minimum wage or a small multiple of that yielding salaries that fall below the poverty level (about $21K today) or at best $40K. These jobs just do not permit buying very expensive homes, even moderately priced home around $200K.

We must face the fact that as a service sector economy, home ownership may well be beyond the reach of the vast majority. If indeed, we want home ownership as a societal goal, then this economy must move back to becoming a manufacturing one, with good paying jobs. Right now, I don't see anything on the horizon that will permit that. Both political parties have made no efforts to curtail overseas job outsourcing and have done nothing to control the import of cheap foreign goods.

Since it is the avowed aim of the Neo-cons to make American Workers compete against slave labor and cheap thirdworld labor, we are going to see a cut in real wages and earnings in this country. Hey when we are all making a dollar a day, then maybe we will start making stuff here. Good luck.

[mrspiffy]

10:59 AM on 09/16/2010

Thank you kool aid drinkers who bought too much house...
http://yieldpig.blogspot.com/

[lastrose]

09:26 AM on 09/16/2010

The housing market was going to take 5-7 years to begin to recover and if you thought otherwise, you were still sipping kool-aid. What's new here?

[RedRat]

02:19 PM on 09/16/2010

The problem is going to be a decline in home prices and an increase in wages. While home prices can come down some more, I certainly don't see an increase in wages. What would possible cause a wage increase?? Beats me.

[time4change2009]

09:19 AM on 09/16/2010

Unless you get an incredible deal...To take on a mortgage now....when the property value could drop the next week...making the property value underwater (almost instantly) is as unwise as taking on an ARM (adjustable rate mortgage).

[hglu]

09:19 AM on 09/16/2010

Everything in our economy is going to be double dipped if no jobs are created. If jobs were created this would solve many problems. With no manufacturing base and everything being made in China and multinational corporations moving everything overseas while Washington stands back and scratches it head the housing will never be good. At the rate real estate prices are declining the majority of homeowners will be underwater in a few years and the banks will own everything.

[Dellany Hall]

01:23 PM on 09/16/2010

Well call me simplistic or stupid but maybe we should just go back to living the way our great grandparents did; build your own log home (YOURSELF) nothing big but big enough to make due along with the OUT house. Get rid of the cars we drive and buy a horse and buggy, grow our own food, work for our selves and our own well being instead of working to make someone else rich. We are like hampsters on the wheel in the cage in that the faster we run the faster we get NOWHERE. We are so used to the electricity, central heat and air, TV, internet, cell phones etc, etc, etc. and for what; where is it getting us except further down because we think we need all this stuff and we don't. Again call me simplistic or stupid but it is something to think about. Can you imagine where these big banks would be if we all did this? when we told them we no longer want your high priced loans that we can never hope to pay back which is what they want. The further indebt they can get us the more power they have over us. Just some food for thought.

[RedRat]

02:26 PM on 09/16/2010

None of your suggestions are cheap and beyond the ability of even the middle class to do. A log cabin? How? We no longer have forests that would permit even a small fraction of 350 million Americans to fall back to. Horse and buggy? Really, have you ever owned a horse? Man, those are the most expensive pets you can have. Where exactly would you graze that animal. In the 19th Century we had billions of acres of range land, that long gone disappeared to developers and population growth.

I find your comment on electricity and TV particularly amusing considering it is being posted on an internet blog! Hmm. About banks, you clearly have not read your history about how banks operated in the 18th, 19th, and early 20th Century. But of course way back than the average American could not and would not have a need of a bank, they were only for the rich and people who could save money. Of course back then, you worked until you died. If you could not work, you hoped like hell that you had a large enough family to support you in your dotage.

God! What a wonderful life we all had back then. Welcome to the Republican vision of America.

[bisbeeornotbisbee]

05:29 PM on 09/16/2010

Dellaney, fanned and faved.  I applaud your ideas.  There was an article on here several weeks ago, re a man named Mark (can't remember his last name), who has lived in the UK for two years, without using any money!  He lives in a nice and tidy caravan (small trailer), on a lot at a farmers.  He works 3 days per week at the farm in exchange for the lot rent.  No running water, a composting toilet, etc.  It actually sounds like an idyllic life to me.  

[TylerDurdenSays]

07:49 AM on 09/16/2010

This is GOOD news for middle class America. Home prices were completely and ridiculously inflated. Standard 3 bedroom homes should never have been bought and sold for ludicrous prices like 300-400,000 in the first place!!!

Now, homes will drop back to what they are ACTUALLY worth (kind of), and normal people with jobs making median incomes will actually be able to afford homes.

IF you want blame about this: Greedy real estate agents, flippers, brokers, and home sellers are to blame. Those homes were NEVER worth those ridiculous prices.

[ainfl]

08:49 AM on 09/16/2010

Yeah, it still needs to come down to realistic prices in parts of the country. When I lived in Sacramento, a typical new build 3 bedroom home around 1800-2000 sqft sold for around 500,000-575,000. Not SoCal, cruddy Sacramento.

[Harlaw]

09:57 AM on 09/16/2010

Agreed that the pirces were too high and still are, but don't blame the Realtors. It's like blaming Scottrade when a stock is overpriced and then crashes. Doesn't make any sense, brokers don;t have control over prices, ever.

[RedRat]

02:29 PM on 09/16/2010

Well not entirely true. If you are selling a house, who sets the price on the home? If you are very knowledgeable, you might be able to do it. But at the end of the day, you will depend on the Real Estate agent to determine a price that can move the house. Real Estate agents know the neighborhoods and what they think they can flog the house for, so in a way they are indeed responsible for many of these high prices. Keep in mind that it is in the best self-interest of the real estate firm to set prices high, since they get a commission of the sale price of the home.

[espressobeans]

05:42 AM on 09/16/2010

Funny what a bunch of lemmings we all seem to be. No wonder the system has seized up with everyone sitting around waiting for the best time to game it.

[Jeremy McMillan]

11:58 AM on 09/16/2010

Lemmings? Are you actually suggesting that some of us should jump back in and take todays' asking prices? I think what we're seeing is a reality check working its way through the population. Some people are more or less resistant to accepting painful truths.

If anyone fits the lemming metaphor, its the 2006-2008 home buyers. I remember clearly the wildly popular nonsense people confidently preached to me in 2004-2007. "Real Estate never goes down." "When are you going to get IN?" Sidelined buyers are certainly NOT lemmings. It has always been the case that whoever brings the cash to the table controls the terms of the transaction. Perhaps all of the lemmings are over the cliff now?

hard bottom home price calculator: rent comp!
http://thinkbait.aphor.net/2010/09/calculating-bottom-of-residential-real.html

Feel it out on the inflation adjusted Case Shiller index rollercoaster (1890-2010).
http://thinkbait.aphor.net/2010/09/new-case-shiller-rollercoaster.html

[RedRat]

02:32 PM on 09/16/2010

I would suggest that your approach to home buying is more like a stock trader. This is problematic and leads to this boom and bust. One should look at home buying as a very long term investment, going out to 20 years or more.

As long as buyers are in this buy and flip mentality, home prices will stay high and we will have a continuous boom and bust system.

[NoPCZone]

04:20 AM on 09/16/2010

Prices are too high. I'm liquid, have no debt and am looking to buy- just not at these prices.

[ElBorba]

04:50 AM on 09/16/2010

Bingo!

Same here . .

I'm trying to judge the bottom, before I buy / build the home I plan to life in for the rest of my life ;-)

[muck-raker]

05:19 AM on 09/16/2010

ElBorba....excellent thought F&F....watch interest rates now @4.35....many areas have settled, the time is close.

[eric14]

07:02 AM on 09/16/2010

Move just before the great beast of inflation blasts interest rates into the sky.