Home prices may continue their free fall into the next year, weighing on the possibility of a full-fledged economic recovery, according to CNN Money.
The housing market is likely to experience a triple-dip, since home values are expected to decline another 3.6 percent by next June, according to analysis by Fiserv, cited by CNN Money. This decline would put housing prices at a new low of 35 percent below the 2006 peak in home values.
A spike in foreclosures and persistently high unemployment will weaken the housing market in the coming months, David Stiff, Fiserv's chief economist, said in an interview with CNN Money.
If Fiserv's analysis holds true, it wouldn't be the first time the housing market experienced a triple-dip. Following the the recession between 1990 and 1991 housing prices experienced a triple-dip until 1995, according to data from the S&P/Case-Shiller Home Price Indices.
In the current cycle, an overhang of foreclosed homes is a big part of what's dragging down housing prices. Foreclosures drive down housing prices twice as much as vacancies, according to a study from the Cleveland Federal Reserve. As of August, house prices have fallen 32 percent since the peak in 2006, according to a widely cited index.
And the current glut of foreclosures is only expected to grow. Banks such as Bank of America froze or delayed foreclosures last year after investigations revealed that they had pushed through foreclosures with shoddy paperwork. Now as banks begin to initiate those once-frozen foreclosure proceedings, the number of foreclosure notices has surged.
The anemic housing market is threatening the possibility of a strong economic recovery, according to experts. To make matters worse, the unemployment rate has been hovering above 9 percent for months. One indicator of weakness of this recovery compared to others: It took the economy 45 months to rise above its pre-recession level, three times longer than the average of the 10 previous recessions.
The dim economic outlook has made consumers skittish about spending, especially on big-ticket items such as homes. Consumer spending overall has remained weak, falling this past summer for the first time in two years. Meanwhile, current homeowners are wary of buying new homes because they would need to take a large loss to sell their current home, since housing prices have fallen.As consumers have become more cautious about buying a home, many potential homeowners have opted to rent pushing rents to soar. For example, rents in Manhattan have jumped to record highs, according to The New York Times.