Residential real estate prices in the US are expected to fall another 10% in 2011 as the supply of distressed properties continues to weigh down the housing market.
Fitch Ratings said it is cautious about the outlook for the property market and a substantial stabilization is not likely as key factors, including negative equity, lower loan modification volume, and slightly higher loss severities weigh it down.
And a survey of economists by Macro Markets, a financial technology company, suggests that national property prices will not increase until the fourth quarter of 2012. It says that prices in the fourth quarter of 2010 will show a 1.13% drop from a year ago, but will begin to stabilize.
Then at the end of 2011, prices are expected to remain 0.17% below where they will be at the end of this year. But by the close of 2012, prices will have begun their long journey to recovery, increasing nearly 2% from 2011, according those surveyed. By 2015, prices will be increasing by more than 3.5% from the previous year.
Robert Shiller, chief economist at MacroMarkets, said less than 3% of those surveyed expected a negative change in 2015. The 3.7% increase expected in that year would be higher than the average annual rate of increases before the bubble.
MacroMarkets Managing Director Terry Loebs said the survey consistently points to price stability in the intermediate and long term. However, he stressed that the recovery will be a long road. ‘Weak market fundamentals persist and continue to gnaw at wealth and confidence in these uncharted, post-bubble waters,’ Loebs said.
But there will be regional variations, according to another report. Prices are forecast to increase in 40% of local markets in 2011, says a report from Veros Real Estate Solutions. It predicts that San Diego property prices are set to rise 3.5% but key markets in Florida and Nevada can expect price falls of 6 to 7%. However, in the next 12 to 24 months nearly 60% of markets are expected to appreciate.
The outlook for commercial property is also variable. The price of commercial property has been fluctuating all year and prices rose for the second consecutive month in October with a 1.3% increase, according to Moody’s Investors Service.
However, the gains in September and October followed significant declines in the previous three months. For the first 10 months of the year, prices rose five times and fell five times.
Analysts said October’s gain occurred despite the second-highest level of distressed loans in the history of Moody’s commercial property price index with 30% of the repeat sale transactions.
‘We expect commercial real estate prices to remain choppy until transaction volumes pick up, indicating that the bid-ask spread for commercial real estate has begun to tighten,’ analysts said. They added that prices declined 34.4% during the past two years and are off nearly 42% since peaking in October 2007.