Epic home price declines
The 2006 real estate year has not been kind to investors and sellers. Each month brings more bad news as sales are setting records for largest year-over-year declines. However, for the most part, home prices had remained constant with the fear that they too would follow the path of sales.
The fruition is coming true as home prices have started on a steep down hill path to rival declining sales headlines.
Realty Times columnist, Broderick Perkins, provides statistical information on the two-sided conundrum dividing outlooks for both buyers and sellers, in his October 5, 2006 article, “Economy.com Forecasts Historic Home Price Decline.”
Depending on how you interpret the provided information, Perkins is calling Moody’s Economy.com report on predicted home prices, “the gloomiest report yet.”
“‘Housing at the Tipping Point - The Outlook for the U.S. Residential Real Estate Market’ says the nation's housing market will slip like it hasn't slipped since the Great Depression, with home price declines in 2007 approaching 20 percent in some areas where the word ‘crash’ could replace ‘soft landing.’”
According to the West Chester, Pa.-based firm, the median sales price for an existing home will decline in 2007 nationwide by only 3.6 percent, but that would still be the first full-year decline in home prices since the 1930s' Great Depression era.
Almost every market that has sustained double-digit home price percentage increases over the past several years is showing the beginning signs of a crumbling cookie.
“‘The highest probability of price declines is in metro areas throughout California, and in and around New York City. Probabilities are nearly as high in the rest of the Northeast Corridor, many Florida metro areas, and in sundry areas in the Midwest and Mountain West,’ according to the report's summary.”
The safest areas for now remain Texas, most of the Southeast (excluding many Florida markets), the Farm Belt and the Pacific Northeast. But this is not to say that these areas will not end up being affected, as they are the only current areas experiencing price and sales gains, while a few years ago they were inflating at a much slower pace than the rest of the nation. They are just a little behind, but safe for now.
“The greatest annual decline will visit sunny Cape Coral, FL, where home prices are forecast to decline 18.6 percent from the peak price. Other large home price declines will come from Reno, NV (17.2 percent); Merced, CA (16.1 percent); Stockton, CA (15.7 percent); Sarasota, FL (14 percent); Naples, FL (13.8 percent); Tucson, AZ (13.4 percent); Las Vegas, NV (12.9 percent); Chico, CA (12.6 percent) and Fresno, CA (12.5 percent), with another 11 metros suffering double-digit, home price declines.”
Even though these price declines would ordinarily be good news for buyers and investors, Economy.com urges you to take caution as there is still uncertainty as to whether the market is correcting or crashing.
Just a month or two ago, the market was said to be in the buyer’s favor. By next, year, it may just be depressing for everyone, as prices and values decline leaving no given time frame for when increases will occur again.
“The bright optimism of home buyers, builders and lenders has abruptly devolved into increasingly dark pessimism.”
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