The U.S. housing market will stagnate next year as a steady stream of foreclosures and nagging joblessness sap the demand needed to mop up an excess of homes on the market, according to a Reuters poll.While a housing recovery will be sustained, home prices, which have plunged by about a third since their 2006 peak, will barely rise next year. Medians from the poll showed a mere 1.1% rise in 2010 and 1.0% in 2011.
Expectations for next year haven't budged from the August poll, and won't even keep up with the expected 1.6% rise in the consumer price index next year.
Expectations for a stable year will provide little joy for the 11 million Americans who now owe their banks more than their home is worth, preventing them from refinancing their loan or buying a new house without coming up with more cash.
"Housing activity has likely bottomed, but the recovery will be slow and long-developing," David Berson, chief economist at California-based mortgage insurer PMI Group, said.
Donald Ratajczak, an Atlanta-based economist consulting for Morgan Keegan, said the gain in prices needed to return from where they are now to 2006 levels--some 35%-- is a decade or more away.
But only one-fifth of economists who answered the question said house prices would not return to those lofty levels.
It is clear, however, that the housing market is still under pressure. Housing starts slumped to their lowest in 1-1/2 years in October, mainly due to sharply reduced building of multi-unit homes.
But Fairly Valued
The poll showed U.S. homes are currently fairly valued, the same as in the last poll, assigning a score of 5 on a 10-point scale where 1 is extremely undervalued. But medians from the poll suggest they have 5% still to fall from here.
Negative housing sentiment has grown with the U.S. unemployment rate lingering at 9.6%.
A soft jobs market has traditionally been the main driver of defaults, and took only a temporary back seat to the faulty underwriting and excessive credit that first tripped up the $11 trillion mortgage market.
"The simple fact is that prices will not be able to rise when poor economic conditions continue to undermine demand and when foreclosures will continue to boost supply," said Paul Dales, U.S. economist at Capital Economics in Toronto.
Meanwhile, signs that foreclosures are running at a record pace are keeping homeowners nervous, unwilling to buy an asset that could quickly depreciate.
Government efforts to address underwater mortgages have also fallen flat, in part because banks are fearful they would have to accept another round of write-downs.
"Growing foreclosure supply is weighing on a market already rife with slack demand, and the only clearing mechanism the market has is price," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia, who was amongst the most bearish of the poll respondents.
More foreclosures are likely on the way as the proportion of national delinquencies rose in the last quarter for the first time this year, to 2.7% of current mortgage balances from 2.6% in the prior period, according to the Federal Reserve Bank of New York.
Faults in the foreclosure process plaguing banks will initially slow the pace of homes put on the market, preventing an immediate price downturn.
But the time it takes for Bank of America (BAC: 11.67 ,0.00 ,0.00%), JPMorgan Chase (JPM: 39.50 ,0.00 ,0.00%) and others to fix their errors is delaying the inevitable and actually increasing losses to investors who hold the loans, analysts said.
After one or two months of delayed foreclosures, the country is likely headed for a record 1.2 million bank repossessions this year, said Rick Sharga, a vice president at RealtyTrac, a foreclosure listings and data firm in California.
by Reuters November 18, 2010
Poll: Housing Market Troubles Won't End for 2011 - FoxBusiness.com
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