Clear Capital Projects Future Decline in Home Prices

Since mid-spring, national quarter-over-quarter home prices gains have continued to soften as values are up 3.5% through September, compared to a 4% change reported through August, according to the latest Clear Capital Home Data Index Market Report.

The Truckee, Calif.-based analytic firm is not optimistic for continued future home price gains and predicts property values will start going down as early as next month and continue declining through the first quarter of 2012.

Despite the recent uptick in home prices, home prices are down year-over-year by 3.8%. Alex Villacorta, director of research and analytics at Clear Capital, said the “housing market has yet to demonstrate the fundamentals necessary to overcome a seasonal slowdown over the next six months.”

The firm is projecting national home prices to drop 1.6% over the next three months and fall by 3.2% through the first quarter of 2012.

This projected drop moves prices closer to first quarter 2011 prices, the lowest since the downturn began and will have an overall 1% decline for the year.

“Barring any new shocks to the market, these modest price movements are anticipated to continue with little reason to expect big gains or losses through the next couple of years,” Clear Capital said in its report. “If the economy does fall back into its second recessionary period since 2006, there is strong potential for a triple-dip in the housing market.”

Clear Capital said the current resurgence in home price values over the last four months was due to a “bounce back from the double dip” that occurred in the first quarter this year.

“As market prices move farther away from that low point, quarterly price changes will reflect the slowdown in price growth and yearly home price changes will show the stagnant environment that the market is in presently,” the HDI report said.

At the regional level, the Midwest continues to lead the nation with a quarterly home price gain of 7.2%, followed by the Northeast at 3.5%, South at 3.2% and West at 0.3%.

Seven of the 15 highest performing markets are in the Midwest, led by Cleveland for the second straight month with an 18.2% increase in home prices. Chicago and Columbus, Ohio, were the third and fourth highest markets, respectively.

In the West, only Honolulu (ranked No. 12) was listed as one of the top 15 highest performing markets for home prices despite the short-term gains of the summer home buying season.

Meanwhile, the West was well represented in the lowest performing markets with 11 of the 15 worst performances. Las Vegas was the hardest hit city, with a 1.7% price change over the most recent rolling quarter. Rounding out the top five was Tucson, Ariz., down 1.6%, Riverside, Calif., down 1.5%, Los Angeles down 1.3% and San Diego down 1.2%.

REO saturation also improved across the nation, with distressed sales taking place in only about 25% homes. This rate is down 9.2% since May and 15.6% since peaking in the first quarter of 2009.

“The current REO saturation rate is an encouraging sign that the summer buying season saw increased sales in the nondistressed segment, which helped support price growth,” Clear Capital said.