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Fiserv Expects Home Prices to Stabilize This Year Despite Price Declines

May 10, 2012

Fiserv Expects Home Prices to Stabilize This Year Despite Price Declines

05/09/2012 By: Esther Cho

Analyzing the housing market through the perspective of 384 markets, Fiserv Case-Shiller Indexes pointed to a slow, but steady pace toward recovery after dramatic prices declines.

According to the Fiserv indexes, in the fourth quarter of 2011, home prices in 18 percent, or 70, of the 384 metro areas tracked were either unchanged or had increased compared to a year ago during the same quarter. Also 32 percent of the metros, or 122, saw prices decline by less than 2 percent.

On the other hand, nearly one-half of the metro areas, or 191, saw prices decrease by more than 2 percent, including double-digit losses in Atlanta (-12.8 percent), Reno, Nevada (-10.8 percent), and Tucson, Arizona (-10 percent).

In the fourth quarter of 2011, the average price of a U.S. single-family home fell four percent from the year-ago period, and Fiserv Case-Shiller projects a further decline of 0.8 percent by the end of 2012.

“The year-over-year decline in average home prices does not tell the full story of stabilization and recovery,” said David Stiff, chief economist for Fiserv. “Nearly all non-price metrics – existing home sales, rising home order volumes, increased spending on home improvement, a jump in multi-family construction – indicate that the housing sector hit bottom last year and has started along a path of slow recovery.”

Stiff also added that they expect home prices, which tend to fall behind changes in sales activity, to stabilize by the end of summer, then rise at an annualized rate of 3.9 percent over the next five years.

Markets that showed improvement after large price declines include Detroit, Michigan (+9.8 percent), Cape Coral, Florida (+3.5 percent), and Port St. Lucie, Florida (+1.1 percent).

According Fiserv, some of the hardest-hit markets are expected to see the fastest growth during recovery, while home prices in markets that were not as adversely affected by the crises are expected to increase at a slower rate.

Twenty-two of the 25 markets that have seen the largest decline in home prices from peak to the end of 2011 are in California and Florida.

When distinguishing between the best-performing markets versus the worst, in the 2011 fourth quarter, 13 out of the 30 best had unemployment rates of seven percent or less and 14 had a median family income above the national average.

Seven of the 10 worst-performing markets in 2011 had unemployment rates higher than the national average and median family incomes below the national average.

When home prices do hit bottom, Fiserv said they will be 35 percent lower than their peak level in the first quarter of 2006.

With the prices declines and low mortgage rates, affordability is greater than ever. For a conventional mortgage, the payment for a median-priced home represents 12 percent of median-family income, the lowest percentage on record since 1971.

Fiserv Case Shiller anticipates the affordability will encourage more first-time and trade-up buyers into the market as apartment rents increase. The growth in demand will then put a floor under home prices.

Fiserv is a provider of financial services technology solutions. The indexes used data from the FHFA and include thousands of zip codes, counties, metro areas, and state markets. The Fiserv Case-Shiller home price forecasts are produced by Fiserv and Moody’s Analytics.

From: http://ping.fm/7FSu0

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