Worst-hit Markets May Not Rebound Until 2025

By:: Kara Johnson | April 12, 2010

Home prices in some major markets may not fully recover for 15 years, although other parts of the country could rebound fairly quickly, according to a new study by Fiserv.

An analysis of 375 U.S. housing markets predicted that housing markets that saw the greatest price increases during the housing bubble, including the “sand states” of Florida, California, Arizona and Nevada, may not see housing prices return to their previous highs until 2025. Some areas of the industrial Midwest and Eastern Seaboard may take a decade or more for prices to rebound, the study predicted.

David Stiff, chief economist for Fiserv, said the study suggests that national housing prices will decline another 7 percent before beginning a slow recovery in 2011. He said powerful market forces will likely hinder the recovery of housing prices in many markets, with high unemployment and a shrunken manufacturing base depressing demand for housing in the industrial Midwest.

Urban markets that were subject to extensive subprime lending and saw large increases from previously low levels during the housing bubble are also likely to see prolonged recoveries. The study cited areas of Chicago, Memphis and Minneapolis as examples.

At the same time, Stiff said the study predicts that some areas could recover fairly quickly, particularly those that did not experience large declines in the first place. He said areas where prices could rebound in the next few years include Pittsburgh, Pennsylvania; Columbia, South Carolina, as well as parts of Texas, Washington and upstate New York.

Stiff said the housing market has shown several signs of strength recently, including a dramatic increase in sales throughout 2009, rising from an annual rate of 4.5 million homes in January to 6.5 million by November. The boost was attributed to lower prices, low interest rates and the $8,000 tax credit for first-time buyers.

The study was based on data from the Fiserv Case-Shiller Home Indexes, supplanted with data from the Federal Housing Finance Agency. More detailing information is available at www.caseshiller.fiserv.com.

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