Don’t hold your breath for home-price bounce

WASHINGTON -- Thought the housing crisis was over? Not quite.

Despite four years of falling prices and recent signs that they were finally bottoming out, homes are expected to lose still more value in many metro areas over the next year.

Parts of the country already pummeled by the housing crisis, such as Las Vegas, Phoenix and Miami, will be hit hardest. But even some places that have rebounded or held up relatively well -- including New York, Los Angeles and Washington, D.C. -- will suffer, too.

That's the conclusion of economists who have been reducing their estimates for home prices as the outlook for the economic recovery has darkened. The number of homes for sale or headed for foreclosure is so high that they think prices will be even lower by next July.

Because housing is such an important engine of the economy, lower prices could dim the recovery. When home values fall and people have less equity, they tend to cut back on spending. And as prices decline, potential homebuyers stay on the sidelines, slowing sales even more.

Earlier this year, analysts said they thought home prices had finally reached their low point and were ready to start rising slowly in most areas of the country. Now, they think the actual bottom could be nearly a year away.

The average home price in the Standard & Poor's Case-Shiller index of 20 big U.S. cities is forecast to drop nearly 2 percent this year from a year earlier, according to the average estimate of more than 100 economists polled this month by MacroMarkets LLC.

That's more pessimistic than in May, when the consensus was for prices to be nearly flat. Other, more bearish analysts think prices will sink 10 percent or more.

Price drops of more than 10 percent are expected in the Phoenix, Miami and Las Vegas areas over the next year, according to Moody's Analytics. Those areas have already been scorched by 50 percent declines in home values.

Las Vegas-based Home Builders Research reported a median resale price of $126,000 in June, down from a peak of about $285,000 in 2006. However, it's up $1,000 from a year ago.

That's not to be taken as a sign of better times ahead, Las Vegas housing analyst Dennis Smith said. The market is facing too many foreclosures, high unemployment, tight lending policies and negative home equity to be "out of the woods yet," he said.

Moody's predicts that other areas -- New York; Los Angeles; San Diego; San Francisco; Denver; Detroit; Cleveland; Minneapolis; Tampa, Fla.; and Washington D.C. -- will see declines of 2 to 8 percent by next July.

Las Vegas could see a further decline of up to 20 percent for residential property, said Kaye Cuba, senior director of valuation services for Cushman & Wakefield brokerage.

Many analysts expect home prices to rise for a few months because a tax credit offered to homebuyers through April increased demand. But the gains probably won't last. By this time next year, Moody's expects prices in 17 of the 20 cities to have fallen.

"Any kind of data that suggests the resale median saw an uptick should be welcome news indeed," Smith said. "We doubt this will be the ongoing trend. Most likely we will continue to report year-to-year ups and downs for many months to come."

Why further price drops for already hard-hit areas, as well as in healthier markets like New York and Los Angeles?

There's already a glut of homes left in each area by the real estate bust, and more foreclosures are expected as Americans fall behind on mortgage payments. Foreclosures add to the supply of homes on the market, bringing down prices.

In Miami, nearly a quarter of mortgage borrowers have missed at least three months of mortgage payments or are already in foreclosure, according to Moody's. That's the highest level in the country. In four other Florida cities -- Fort Lauderdale, Cape Coral, West Palm Beach and Naples -- the proportion exceeds 15 percent. The same is true for Las Vegas.

On top of that, so-called short sales, which happen when lenders let homeowners sell their houses for less than what they owe on their mortgages, are rising. They can drive down the value of neighboring homes, too. In Sacramento, Calif., short sales made up about 26 percent of homes sold in June, up from about 17 percent a year earlier.

Contributing to the problem is an economy grappling with high unemployment, relatively flat pay and tightened credit, all working to limit the number of people buying homes.

It could be a decade before the average price nationally reaches the peak it hit four summers ago, says Celia Chen, chief housing economist at Moody's. Even when they do resume rising, prices may not outpace inflation.

The median price peaked at $230,300 in July 2006 before tumbling 28 percent to a low of $164,700 in January 2009, according to the National Association of Realtors. The median has since risen to $183,700.

Nationally, about 7.1 million homeowners -- more than 13 percent of households with a mortgage -- have either missed at least one payment or are in foreclosure, according to data provider Lender Processing Services Inc.

In some Sun Belt cities, investors armed with cash are gorging on deep discounts for some homes, yet the foreclosures keep coming. The local areas remain stuck with depressed economies and a glut of vacant and soon-to-be-vacant homes.

"Even when demand picks up, prices aren't likely to budge all that much," said Mark Vitner, senior economist with Wells Fargo Securities.

Review-Journal writer Hubble Smith contributed to this report.