Home Prices Should Stabilize

Index cites falling mortgage delinquency and foreclosure rates for increased optimism.

August 10, 2011

Despite housing market weaknesses in nearly every U.S. region, home prices should stabilize by the end of 2012, according to the latest Fiserv Case-Schiller Indexes.

There’s reason for optimism because mortgage delinquency rates have fallen for more than a year, foreclosure rates have started to decline, and the flood of bank-owned sales which has swamped many markets will begin to recede as fewer houses enter the foreclosure pipeline, says David Stiff, Fiserv’s chief economist.

“Meanwhile, housing affordability has nearly returned to pre-bubble levels,” Stiff reports. “Relative to family income levels, the average U.S. home is now only 5% more expensive than it was in 2000.”

These factors, according to Fiserv and Moody’s Analytics, when combined with the economic growth forecast for the coming quarters, point to a broad-based recovery for housing that will begin in early 2012.

Between the first quarter of 2012 and the first quarter of 2013, homes are projected to increase by an average of 2.7%, with gains in 365 out of 384 metro areas.

Other highlights from the latest Fiserv Case-Schiller Indexes:

• Eight of the 10 worst performing markets in the 2011 first quarter had unemployment rates higher than the national average.

• Five of the 10 best performing housing markets in the last five years are in Texas, where the Midland and Odessa Metropolitan areas have seen house prices grow 42% and 30.3%, respectively, from 2006 to 2011.

• The outlook for Florida is mixed. Four of the 10 metro areas where home prices are projected to grow the most between the first quarter of 2012 and the first quarter of 2013 are in Florida: Ocala, Palm Coast, Panama City/Lynn Haven/Panama City Beach, and Palm Bay/Melbourne-Titusville.

But the state is also home to six of the 10 markets projected to suffer the biggest home price declines over the same time period: Miami/Miami Beach/Kendall, Fort Lauderdale/Pompano Beach/Deerfield Beach, Naples-Marco Island, Crestview-Fort Walton Beach-Destin, Gainesville, and Orlando/Kissimmee/Sanford.

• Four metro areas in Washington (Tacoma, Kennewick-Pasco-Richland, Spokane, and Olympia) are in the 10 markets projected to experience the highest home price increases for the 2011 first quarter to 2012 first quarter period.

• Six of the 10 markets that have suffered the greatest price declines from peak to the first quarter of 2011 are in California (Merced, Modesto, Salinas, Stockton, Vallejo-Fairfield, and Bakersfield-Delano).

• Home prices are projected to dip further in 2011 and begin modest appreciation in 2012.

• More than 95% of all metro areas are projected to rise by first quarter 2013.

However, continued economic weakness and uncertainty continue to weigh on markets, Stiff says. “The stabilization of housing markets depends greatly on household confidence in the strength of the economic recovery. Unfortunately, recent economic news has done little to build confidence.

“Weak job growth numbers in May and June, political wrangling over the Federal government debt ceiling, and the ongoing debt crisis in Europe have all increased pessimism,” he continues. “Households will not become more optimistic about housing markets until they are convinced that the job market is improving and that politicians will not allow debt problems to become new economic catastrophes.”

The Fiserv Case-Schiller Indexes, which include data covering thousands of zip codes, counties, metro areas and state markets, are owned and generated by Fiserv. The historical and forecast home price trend information in this report is calculated with the Fiserv proprietary Case-Schiller indexes, supplemented with data from the Federal Housing Finance Agency.