It’s not looking pretty for home values. Prices are on a downward slide once again and the market could see a 5% to 10% further drop by the time 2011 ends.
But all that seems to be a secondary concern for the senior economist at CoreLogic who tracks home prices and negative equity. Sam Khater sees values bottoming out later this year, but is focusing on the recovery of prices that comes after the market hits bottom.
Will the trajectory go back to long-term trends where house prices outpaced inflation?
Or will it be a slow, long slog where homeowners trapped with underwater mortgages will continue to be prone to default? Khater sees a recovery in house prices that will be slower than the historical experience.
“I would argue it would be a little bit below that because median household income has been flat since 1997,” he said.
In addition, 10.8 million single-family loans—or 22.5% of all mortgages—are underwater, according to a third-quarter CoreLogic report. The provider of financial and property information defines “negative equity” as a mortgage with a loan-to-value ratio of 105% or higher.
(Nearly 10% of all mortgages have LTVs of 125% or more.)
“The price recovery will be slow after the bottom. Negative equity is holding back the ship,” Khater said.
CoreLogic recently reported that prices fell 5.46% in December following a 4.39% decline in November.
Values have fallen for five straight months, erasing gains achieved in the first half that were juiced by the federal homebuyer tax credit that expired in April.
The good news is that prices ended the year unchanged, after falling 12.7% in 2009. Since the peak in April 2006, values have fallen 32%, based on the CoreLogic house price index, which includes distressed sales.
Distressed sales comprised 36% of existing home sales in December, according to a National Association of Realtors’ survey. Foreclosures accounted for 24% of single-family, condo and co-op sales. Roughly 12% were short sales.
NAR economists expect distressed sales will make up about 33% of total sales in 2011, about the same as last year.
“Prices are expected to decline 5% to 10% max this year before bottoming out in late 2011,” Khater said. The CoreLogic senior economist noted that there is a 16-month supply of homes on the market and sales continue to be slow. “Typically, when the supply is this high, prices are declining at roughly 10% to 15%. That doesn’t necessarily mean we will get there,” he stressed.
Khater believes a pickup in home sales this year will prevent a bigger slide in prices. However, it won’t be enough to send prices higher. Also, rising mortgage rates won’t help the situation.
The five states with the biggest price depreciation for the month were Idaho, -14.61%, Alabama, -13.14%, Arizona, -10.94%, Oregon, -9.61%, and Missouri, -8.82%.
The five states with the highest price appreciation were North Dakota, 5.53%, Hawaii, 3.79%, West Virginia, 3.74%, New York, 1.66%, and Vermont, 0.65%.
Peak (of April 2006) to current change in home prices, including distressed transactions, was 31.6%. Excluding distressed transactions, the decline was 22.2%.
