Fiserv: Home Prices Will Continue to Fall into 2012

In the second quarter of 2011, single-family home prices fell 5.9 percent on an annual basis, according to the latest national Fiserv Case-Shiller home price indexes released Wednesday. This continuation of the double-dip that started in 2010 is not the end, according to Fiserv.

In fact, Fiserv predicts prices will continue to fall into the coming year — dropping another 3.6 percent by the first half of 2012.
However, Fiserv does see a light at the end of the tunnel. According to its predictions, prices will rise 2.4 percent from the second quarter of 2012 to the second quarter of 2013.
Capital Economics agrees with Fiserv’s forecast of further price declines in the short term, predicting “prices will continue to edge a little lower over the coming months,” according to its monthly housing report released Wednesday.
The timeline for clearing the current inventory of homes on the market rose from 8.2 months in August to 8.3 months in September, according to Capital Economics. “This is consistent with further falls in prices over the coming year,” the firm states.
Falling prices and mortgage rates have increased housing affordability. The monthly mortgage payment for a median-priced, single-family home is currently about 40 percent lower than at its peak.
“Nationally, purchase mortgage payments now account for only 13 percent of monthly median family income, the lowest percentage on record (since 1971), and compared to 23 percent in the first quarter of 2006,” said David Stiff, chief economist at Fiserv.
The markets that experienced the largest home price bubbles and ensuing crashes have experienced the greatest rises in affordability. Las Vegas saw a 32 percent drop in the ratio of monthly mortgage payment to family income.
Also notable, Miami has experienced a 23 percent drop in the mortgage payment to family income ratio, and Los Angeles has experienced a 32 percent drop.
“Although homes have become much less expensive, housing demand remains depressed with existing home sales back to 1998 levels, averaging 4.3 million units per year since June,” Stiff said.
Stiff continued, “Many households cannot finance first-time or trade-up home purchases to take advantage of lower home prices because of much stricter mortgage lending standards. But even households with access to mortgage credit are hesitant to buy homes while job growth is weak and consumer confidence is low.”
Stiff believes that if economic growth increases through the end of 2011, home prices could stabilize in early 2012. “But we should not expect a rapid rebound in home prices,” he said.
Prices fell in 340 of the 384 metro areas tracked by the Fiserv Case-Shiller indexes. In 302 of these metros, prices recorded new lows in the second quarter.
Fiserv predicts 372 of the 384 metros will rise over the next 12 months, while 12 metros will see declines.
Thirty metros recorded double-digit drops in the most recent indexes, and over the next year, prices are expected to fall by double digits in 16 metro areas.
At the same time, prices are expected to rise by double digits in only two metros-Madera-Chowchilla, California and Carson City, Nevada.