Housing prices to fall 11% in coming year
posted at 3:20 pm on October 21, 2009 by Ed Morrissey
Most homeowners thought they had weathered the worst of the collapse in the housing market — those who still have their homes, that is. CNN Money now says that any feeling of relief at stabilizing home values will only be temporary. Housing prices will fall another 11% by next summer, thanks to a new wave of foreclosures predicted in the coming months:
If you thought home prices were bottoming out, you may be wrong. They’re expected to head a lot lower.
Home values are predicted to drop in 342 out of 381 markets during the next year, according to a new forecast of real estate prices.
Overall, the national median home price is predicted to drop 11.3% by June 30, 2010, according to Fiserv, a financial information and analysis firm. For the following year, the firm anticipates some stabilization with prices rising 3.6%.
In the past, Fiserv anticipated the rapid decline in home-sale prices over the past few years — though it underestimated the scope.
Mark Zandi, chief economist with Moody’s Economy.com, agreed with Fiserv’s current assessments. “I think more price declines are coming because the foreclosure crisis is not over,” he said.
While the decline will be widespread, much of the damage will be contained to specific markets. These are the same that have already been hard hit by the housing bubble collapse, namely Miami, Orlando, Southern California, Las Vegas, and Phoenix, among others. Homeowners in these markets will see large decreases in their home values on top of what they have already lost, as much as 30% in Miami, for example.
However, almost all markets will feel the pinch. For many Americans, their home represents their greatest investment, with the equity used later to to boost retirement by downsizing. The size, depth, and breadth of these losses in an election year may have some significant impact on the midterms. Democrats will almost certainly try to blame George Bush, but they will have controlled Congress for almost four years by the time the elections come next November. With high unemployment and crashing home values in the forefront of voters’ minds, they will be looking to clean house … assuming, of course, that they still own one.
Blowback
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We put rouge on her, propped her up, sold off anything that wasn’t nailed down, and did a reverse stock swap 5-1 that is still probably taught in business schools.
–You would normally only bother with a reverse stock split if you were a publicly traded company who was violating NYSE or NASDAQ listing standards because your stock price was too low.
Jimbo3 on October 21, 2009 at 5:35 PM
I was thinking more “Million Dollar Listings.” *haha
AnninCA on October 21, 2009 at 5:35 PM
Location, location, location
My place in DC is barely worth more than I paid for it. This is an outrage.
IlikedAUH2O on October 21, 2009 at 5:41 PM
I have heard from long term residents that they barely noticed the Great Depression. Except that the government started hiring more.
IlikedAUH2O on October 21, 2009 at 5:42 PM
By the way, personal real estate isn’t probably where the big risks are. It’s commercial real estate that is having/will probably have the more serious problems for banks in the next few years. There are a lot of commercial real estate loans coming due, with almost no money available to refinance and with prices for commercial real estate down significantly. You could also see the same scenario for a bunch of heavily leveraged, privately owned companies who were bought using shorter term funds in the last few years. Refinancing loans are also not generally available at any price for the poorer credits.
Jimbo3 on October 21, 2009 at 6:03 PM
Exactly. That’s what brought down the S&L industry. It wasn’t personal loans.
It was commercial.
AnninCA on October 21, 2009 at 6:27 PM
Except that is not happening. Unadjusted CPI is down 1.3% y/o/y.
Bill C on October 21, 2009 at 7:38 PM
Obama’s legacy.
daesleeper on October 21, 2009 at 9:01 PM
Back within a month or two of being inagurated. His Majesty said he would not have a second term if the economy wasn’t peppy in 2012. I hope people remember his statement in three years.
burt on October 21, 2009 at 11:25 PM
The blood letting will be compounded by the weakening dollar.
We have yet to enter the depths of the “Great Depression V 2.0″
Gird yer loins boys.
TheSitRep on October 22, 2009 at 4:49 AM
I listed my house just south of Houston 2.5 months ago and sold it in 12 days with 2 full price offers.
Sweet!
TheSitRep on October 22, 2009 at 4:55 AM
If a bank sells a house for less than the mortgage is worth, the bank has to take a hit to it’s net worth. If the banks sold all the homes they are currently holding, half of all banks would immediatealy go into receivership. The choice is not between less profit and more profit. It’s between less profit and being taken over by the Feds.
MarkTheGreat on October 22, 2009 at 8:44 AM
The banks don’t have to mark down the prices until the declare the mortgages in forfeiture and try to sell the house. So they continue pretending that mortgages that are 6 months or more in arrears are just “behind”.
MarkTheGreat on October 22, 2009 at 8:46 AM
Manufacturing jobs are unionized.
MarkTheGreat on October 22, 2009 at 8:51 AM
That should be a bannable comment.
MarkTheGreat on October 22, 2009 at 8:52 AM
Mark, here’s from Citicorp’s 2004 10-K. It looks like banks may recognize credit losses earlier than that point, but only write down the loan well after default or foreclosure:
As a general rule, unsecured closed-end installment loans that become 120 days contractually past due and unsecured open-end (revolving) loans that become 180 days contractually past due are charged-off. Loans secured with non-real-estate collateral are written down to the estimated value of the collateral, less costs to sell, at 120 days past due. Real-estate secured loans (both open- and closed-end) are written down to the estimated value of the property, less costs to sell, no later than 180 days past due.
In certain Consumer Finance businesses in North America, secured real estate loans are written down to the estimated value of the property, less costs to sell, at the earlier of receipt of title or 12 months in foreclosure (which process must commence when payments are no later than 120 days contractually past due). ……
Allowance for Credit Losses
Allowance for Credit Losses represents management’s estimate of probable losses inherent in the portfolio. Attribution of the allowance is made for analytical purposes only, and the entire allowance is available to absorb probable credit losses inherent in the portfolio, including unfunded commitments. Additions to the allowance are made by means of the provision for credit losses. Credit losses are deducted from the allowance, and subsequent recoveries are added. Securities received in exchange for loan claims in debt restructurings are initially recorded at fair value, with any gain or loss reflected as a recovery or charge-off to the allowance, and are subsequently accounted for as securities available-for-sale.
……
Each portfolio of smaller-balance, homogeneous loans, including consumer mortgage, installment, revolving credit, and most other consumer loans, is collectively evaluated for impairment. The allowance for credit losses attributed to these loans is established via a process that estimates the probable losses inherent in the portfolio, based upon various statistical analyses. These include migration analysis, in which historical delinquency and credit loss experience is applied to the current aging of the portfolio, together with analyses that reflect current trends and conditions. Management also considers overall portfolio indicators including historical credit losses; delinquent, non-performing, and classified loans; trends in volumes and terms of loans; an evaluation of overall credit quality; the credit process, including lending policies and procedures; and economic, geographical, product, and other environmental factors.
…
Jimbo3 on October 22, 2009 at 10:14 AM
Location, location, location. I live in SoCal, one of the places hit hard. Prices are still high in my neighborhood, maybe 10-15% off peak. The house across from me sold in 3 days a few months ago for about $750K, and peak was around $800K. According to the numbers I have seen in the newspaper and from Zillow, prices in my zip are down almost 25% from peak, so my neighborhood is doing at least 10% better than the zip in general.
It will be interesting to see what happens with both the residential and commercial real estate markets in the next 12 months. Things could get really ugly if the economy doesn\’t start recovering and more people are able to find jobs that pay a decent wage.
Snidely Whiplash on October 22, 2009 at 3:09 PM
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