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Housing Prices to Hit Rock Bottom, Foreclosures Up

Insiders who see a housing market rebound ahead are not equally optimistic about delinquencies and foreclosure rates in a market that at best will be flat.

National data showing more stable home prices in the second half of 2011 that were accompanied by lower bank-owned foreclosure saturation rates suggest markets will remain flat in 2012, according to the director of research and analytics at Clear Capital, Truckee, Calif., Alex Villacorta, who expects price gains of merely 0.02% this year.

The Clear Capital annual review data show home prices declined 2.1% year-over-year in 2011, the smallest change since 2006 when prices increased by 1.7%.

Last year “was a relatively quiet year” featuring a wide range of state-level performance that will persist this year as well, Villacorta said. If only 24% of the individual markets showed signs of stabilization in 2011, his expectations are to see up to 40% of the country’s 50 markets be stable in 2012.

A housing market case scenario where prices stabilize, even start to rise again, made it to top 10 predictions for residential real estate in 2012 by Dave Linger, chairman and co-founder of Re/Max, a Denver-based real estate franchise that has been in the business since 1973.

Linger sees ahead the beginning of a rebound.

The current interest rates and home prices are so low this unique environment “may not be repeated for decades,” he said. “There is no question the housing recovery will be slow and steady,” which is obvious already in many cities. “Home prices will stabilize and start to rise by the end of the year.”

Too optimistic? Maybe, but he is one of many veterans who agree this no precedent the marketplace is also creating unprecedented opportunity.

“The real estate market has hit rock bottom,” says the general counsel to the Money Store, Marlboro, N.J., Les R. Kramsky, a mortgage, title insurance and real estate market veteran with over 20 years of corporate law experience.

The median home price in the U.S. has “plunged nearly 40% in a little over five years,” adjusting the excess valuations of the housing bubble, Kramsky says. In his view, assuming the economy will not receive any shocks due to the European and world economy problems, the U.S. real estate “will slowly work its way out of the red.”

He cautions, however, it is not going to be a speedy recovery. Home prices will drop by 3% to 5% in 2012 before "setting the stage for long awaited gains in 2013." Meanwhile, more homeowners will default on their mortgages keeping the backlog of foreclosures at significant numbers and pushing up rental demand.

Credit rating and property devaluations remain key. Kramsky argues that buyers started coming back into the market in 2011. Going forward, it will take “an uptick in home values for people to really start buying again."

Linger also anticipates increasing numbers of home sales, up to 50% of which are likely to be distressed properties as REO inventories will continue to rise due to foreclosures.

In fact the most current data released by the Lender Processing Services Inc., Jacksonville, Fla., show that while mortgage delinquencies at the end of November 2011 were almost 25% lower than the January 2010 peak, a trend of fewer delinquencies that dominated 2010 and the first quarter of 2011 “appears to have halted.”

The total U.S. loan delinquency rate that combines foreclosures and delinquencies as a percentage of active loans is 8.15%, according to the latest LPS Mortgage Monitor report. It found that in November new and repeat foreclosure starts dropped by almost 30% compared to October, primarily due to ongoing document reviews and regulation that are keeping the number of seriously delinquent loans in the pipelines at nearly 2 million.

As of the end of November the rate of new problem loans—or loans that were current six months prior—did not improve significantly. This degree of stagnation, analysts wrote, “indicates that while the situation is not getting markedly worse, it is not improving either.”