Will home prices stabilize in 2011?

Are better times ahead in real estate? And are declining home prices likely in the coming year? Can both happen at the same time?

That might be the case, according to a new analysis from Fiserv, Inc., an information management provider for the financial services industry. It says both that prices will stabilize — but that prices are likely to fall further.

After looking at data for more than 375 U.S. markets, Fiserv and Moody’s Analytics say home prices have already leveled out in one out of four metro areas. They also estimate that price stability will return to “75 percent of U.S. metro markets by the end of this year and 100 percent of markets by the end of 2012.”

“Large supplies of foreclosed properties will continue to be the biggest downside risk for home prices and metro area housing markets,” said David Stiff, chief economist, Fiserv. “Foreclosure activity declined at the end of 2010, but sales activity of bank-owned homes increased. In bubble and crash markets, the uncertain timing and volume of bank liquidated properties will cause home prices to bounce around their lows for many years.”

Stiff added that “since a significant number of households no longer have access to mortgage credit, improving affordability does not necessarily translate into sustained housing demand in every metro market.”

Lower Home Prices Predicted

Stablilization, however, may not mean higher prices.

The Fiserv Case-Shiller Indexes “forecast that average single-family home prices will fall another 5.5 percent over the next 12 months, with steep home price declines expected to continue in markets that have been hurt most by the housing crisis. These markets, including many in Florida, California, Nevada and Arizona, will begin seeing prices stabilizing throughout this year and through the end of 2012. Factors weighing on the housing market continue to include chronic high unemployment and the large number of distressed properties that remain in many of the bubble markets.”

Fiserve also explains that stabilization will not occur all at once or in all locations. Specifically, the company says:

  • Markets where prices have already stabilized include San Diego, Washington, D.C., and San Francisco.
  • Markets where prices will stabilize by the end of 2011 include Minneapolis, New York City and Portland, Ore.
  • Markets where prices will not stabilize until 2012 include Miami, Phoenix and Las Vegas.

Representative home price data for major U.S. markets

Metro Area Population

Change in Home
(2007:Q3 to 2010:Q3)

Change in Home
(2009:Q3 to 2010:Q3)

Forecast Change
in Home Prices
(2010:Q3 to 2011:Q3)

United States 307,006,550 -24.7% -1.5% -5.5%
Austin, TX 1,705,080 2.7% -0.5% -0.4%
Baltimore, MD 2,690,890 -17.1% -2.3% -1.8%
Columbus, OH 1,801,850 -7.5% -1.5% -2.8%
Fort Worth, TX 2,121,230 1.6% -0.2% -1.2%
Indianapolis, IN 1,743,660 -1.9% -0.2% -3.5%
Jacksonville, FL 1,328,140 -32.2% -7.1% -6.6%
Kansas City, MO 2,067,590 -4.2% -0.6% -2.0%
Louisville, KY 1,258,580 0.5% 0.5% -1.6%
Milwaukee, WI 1,559,670 -10.9% -2.2% -0.7%
Nashville, TN 1,582,260 -6.3% -0.4% -2.6%
New Orleans, LA 1,189,980 -6.1% -2.5% -5.3%
Orlando, FL 2,082,420 -46.7% -6.5% -14.0%
Philadelphia, PA 4,012,570 -8.4% -1.0% -2.3%
Raleigh, NC 1,125,830 -2.0% -2.4% -0.5%
Sacramento, CA 2,127,360 -38.0% -1.2% -8.3%
Salt Lake City, UT 1,130,290 -14.6% -2.8% -4.4%
San Antonio, TX 2,072,130 0.5% -1.3% -1.9%
San Jose, CA 1,839,700 -26.6% 6.9% -8.3%
St. Louis, MO 2,852,910 -7.6% -1.2% -4.0%
Tucson, AZ 1,020,200 -33.0% -7.3% -2.8%

Source: The Fiserv Case-Shiller Indexes. The Fiserv Case-Shiller home price forecasts are produced by Fiserv and Moody’s Analytics.

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3 Comments on "Will home prices stabilize in 2011?"

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  1. No – we should not ignore the facts but the constant barrage of negative headlines primarily quoting minor fluctuatons in the Case-Shiller index is not news.

    First of all, the C-S index does not reflect all housing values, only recent sales which currently are heaviliy impacted by foreclosures and short sales and, of course, those sales will cause a downward trend in pricing. But no one really knows the values of the homes that are not on the market, many of which are owned without a mortgage and are under no pressure to be sold. My personal residence lost 45% of its value in the past few years but is still worth three times what I paid for it. And I am not alone in enjoying that positive housing financial position.

    So let’s say the government is right and we are back to 2004 pricing. So what? If we strat over with 2004 values we should still see a 4%+ annual rise in values and even with the new higher downpayment requirements will still yield a 13%+ annual ROI, not counting the tax benefits (which I believe will be maintained) and the non-financial benefits of ownership.

    For the average American, that is a very attractive proposition.

  2. Peter G. Miller says:

    Dan —

    Thanks for your comment.

    I don’t think the media, whoever or whatever they are, are harping on negatives, I think they are making reality-based reports. Even the federal government says the most-recent U.S. home price index is “14.9 percent below its April 2007 peak and roughly the same as the August 2004 index level.”


    Should reporters ignore such statements? Do they not suggest that prices have indeed declined?

  3. The national media continues to harp on the negatives that continue to plague housing including foreclosures, shadow inventory and one of their favorites, minor monthly fluctuations in the S&P Case-Shiller Index. If one looks hard enough, there is always some statistic that can be found that, with a little creativity, can be used as the basis for a prognostication for doom and gloom.

    And although all of these reports and the data on which they are based may contain some elements of truth, none of them contain the whole truth nor are they sufficient on their own to base a realistic forecast for housing in general nor for the homebuilding industry. Certainly there continue to be a significant amount of foreclosures on the horizon and an equally troubling high number of underwater mortgages that likely will become foreclosures or, at least, short sales at discounted values. It is also reasonable to assume that the Case-Shiller Index will continue to show monthly fluctuations and in some local markets, even ongoing declines in value. But there is no doubt in my mind that for the vast majority of housing markets around the country, 2011 will prove to be the start of a long lasting recovery for housing and for the homebuilding industry.

    The basis for my belief is very simple and arises from three simple facts (truths):

    First, Americans have embraced home ownership and it is now a fundamental part of our national psyche. According to a consumer survey last month by Fannie Mae, the housing crisis hasn’t quenched the homeownership thirst. More than 51% of people said the recent troubles did not change their willingness to buy a home and an additional 27% said it actually made them more likely to do so. The report, the first detailed analysis Fannie has taken of consumer attitudes about the rent-or-own decision, found that qualitative reasons — like having the ability to remodel (or for new homes customize to their tastes) or to send the kids to a better school — have overtaken financial considerations as the primary motivators for homeownership.

    Second, according to a story from Forbes last month titled “Home Prices Exit 2000s Way Up, Despite Crash”, the article explains that despite “all the teeth-gnashing over the real estate bubble, the bust and the mortgage mess, you can be forgiven for failing to notice this little tidbit: Housing had a superb decade. In fact, the value of a square foot of housing in the U.S. is up 58% from its January 2000 level for the 25 largest U.S. metropolitan areas. That represents an average annual gain of 4.3% in the value of one square foot of housing” and are impressive considering that the S&P 500 is lower now than it was in January 2000 as is the Nasdaq. Even factoring in inflation, which ran between 2.5% and 3.5% for most of the decade, a home purchase really did produce wealth for anyone who opted to sell stocks and invest in housing at the time of the dot-com crash.

    Third, population growth continues strong in the US. and, when employment increases and consumer confidence returns (and consumer confidence is already on the way back up), will fuel increased household formations that equal housing demand that will produce positive absorption.

    So I foresee not only pricing stabilization for most markets in 2011 but even some gains.


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