Home Prices to Begin Rising in 2011
One would theorize that the lowest mortgage rates in over half-a-century, combined with affordability in housing in markets where buyers had been priced out for years, should be turning the market around. But high unemployment, strict lending standards, and a continued glut of distressed properties are preventing that from happening.
Sales have plunged since federal tax credits for homebuyers expired in April, and the recent revelations about lenders’ foreclosure practices have delivered a serious blow to confidence in the market. Since the housing bubble burst, around the middle of 2006, the national median sales price for homes has plummeted 27 percent, or 7.7 percent per year. The median now stands at $177,000, slightly higher than the median from way back in 2003.
Among the cities hit hardest by this trend, Merced, California has seen the biggest drop in median home price, with a 68 percent drop since the onset of the collapse. Following closely behind were fellow California cities Modesto, Salinas, and Stockton, followed by Coral-Fort Meyers, Florida and Detroit, Michigan. Prices rose in just twelve cities over that time, cities in upstate New York, Tennessee, and Pennsylvania. The cities missed the real estate boom and have enjoyed steady appreciation over the last four years.
The plunging home prices in the US have left 23 percent of the nation’s 53.5 million mortgage holders underwater, meaning they owe more on the loan used to purchase their home than what the home is currently worth. Short of coming up with the difference, an average of $75,000 according to CoreLogic, they are unable to sell the property and move. The choices these underwater borrowers are left with are default, staying and hoping for an improvement in the market, or asking permission from their lenders to execute a short sale, where the home is sold for less than what is owed.
A number of recent economic indicators are providing a glimmer of hope for these underwater homeowners. Median home prices rose 3.6 percent nationally from June 2009 to June 2010. A number of cities in California over that time saw double-digit increases over that time. And prices have climbed at least five percent in a number of California and Florida cities that were hit particularly hard by the housing bust.
A worst-case scenario would see economic growth continue at a slow pace, and further high unemployment would cause even more foreclosures, driving prices down even more. Consumers would get even tighter with their finances, further hindering growth and job creation.
But a number of analysts are now predicting the job market will begin turning around by the middle of next year. And the Federal Reserve’s commitment should keep mortgage rates down until that time. Analysts point to the fact that overall the housing market is fairly valued based on the relationship of home prices to rents, and some markets have even become slightly undervalued, which should attract buyers and investors alike.
