Home Prices Predicted to Keep Dropping

Monday, Jul 6, 2009

Despite recent suggestions that the housing market is stabilizing, home prices will likely continue to decline another two years, according to a leading assessment of real estate market trends.

In its quarterly report on economic and real estate trends, mortgage insurer and research firm PMI Insurance predicted that 30 of the 50 largest metropolitan areas in the United States will likely see lower home prices in the first quarter of 2009 than they do presently. The study went on to say that approximately 85 percent of the nation's 381 metropolitan areas face an increased risk that housing prices will be lower in the first three months of 2011 than they are now.

Rising foreclosure and unemployment rates, weakening consumer demand and falling house prices are all contributing to greater risk of further declines in the economy in general and the housing market in particular, said David Berson, PMI's chief economist. At the same time, he said continued low prices and interest rates will continue to draw repeat and first-time homebuyers into the housing market.

Other reports suggest housing bottoming out

The quarterly PMI report would seem to contradict many other recent reports, which have suggested home prices are bottoming out. The PMI report is based on a statistical analysis that takes into account economic, housing, and mortgage market factors to estimate the likelihood that home prices in various markets will rise or fall over the next two years.

Depending on how the report is received, it could cause lenders to tighten up their lending standards for new or refinanced mortgages or on home equity loans, since all are tied to home values. On the other hand, home buyers would be able to continue to find increasingly good bargains as prices continue to slide.

Extent of decline not predicted

The PMI report does not estimate the degree to which prices may decline, only the risk that they will be lower two years from now. Metropolitan areas in Florida, California, Nevada and Arizona, which have experienced the greatest declines in home values since the start of the recession, continue to rank among those areas at the highest risk of further declines, according to PMI.

At the same time, PMI predicted that home affordability, a measure of housing prices compared to local incomes, would improve over the next two years, with 98 percent of all metropolitan areas expected to have improved affordability by 2011.

 

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