Standard & Poor’s analysts believe home prices will drop between 7% and 10% through 2011, erasing any improvements prices have recently made.
Home sales, which plummeted after the homebuyer tax credit expired in April have continued to lag. Pending home sales, which preclude existing home sale data, dipped 1.8% in September before the market goes into a winter many expect to be bleaker than usual. With this lack of demand, inventories should grow, according to S&P, while prices drop.
“Low mortgage rates will likely continue to encourage refinancing, but their influence on home buying activities has been limited due to the weak housing market and a lack of demand,” S&P credit analyst Erkan Erturk said.
Despite national gains in home prices through the second quarter, Fiserv, a financial services technology provider, said it expects a 7.1% drop over the next 12 months with some markets falling into a double-dip.
Without the homebuyer tax credit that expired in April, home sales have plummeted, and Fiserv expects prices to follow before stabilizing again at the end of 2011.
Fiserv Chief Economist David Stiff said the largest declines will come in those markets that had strong spring and summer price gains.
“This is because the home buyer tax credit delayed the correction in home prices that is necessary to return housing affordability to its pre-bubble levels,” Stiff said.
But by the end of next year, Stiff said prices should hit bottom.
“If there are no downside surprises for the economy or the housing and mortgage markets, home prices should start to stabilize at the end of 2011,” Stiff said.