Foreclosed Property Sales Will Keep Depressing Home Prices

Foreclosed property sales will continue to depress home prices this year, according to several analysts and economists like Pat Newport of IHS Global Research, Gus Faucher of Moody’s Economy.com and author Shari Olefson.

These analysts noted that home prices rose during the months of May to September, based on data from Standard & Poor’s/Case-Shiller, but they also stated that price levels remained flat in October. They predicted that house prices will drop by at least three percent in 2010.

Financial analysts at Fiserv Lending Solutions meanwhile predicted that house prices will decrease in 342 out of the 381 housing markets that it has been monitoring and that prices will drop by 11.3 percent on the average.

IHS economist Newport said that despite recent stabilization in house prices due largely to record-low mortgage rates and to tax credit and related first time home buyer incentives, home prices will decrease in 2010 because of three reasons: the expected increase in mortgage rates, the scheduled expiration of home buying tax incentives and the continued increase in foreclosed property sales.

Faucher of economy.com supported Newport’s contention by stating that the level of foreclosures this year will again be significant enough to dampen the nascent recovery of home prices in several housing markets.

Faucher predicted that home prices will drop by another 8 percent and that the biggest rate of decreases will occur in the most foreclosure-battered states like California, Arizona, Florida and Nevada.

Aside from the shortcomings of the federal loan modification program, other reasons for the continued rise in foreclosures, according to analysts, are the scheduled resetting of adjustable rate mortgage loans, the rise in strategic defaults among underwater borrowers, the upward movement of mortgage rates and the expiration of home buying tax incentives.

Olefson, who wrote the book “Foreclosure Nation: Mortgaging the American Dream,” said that a big percentage of over 350,000 homeowners with pay option ARM loans will default because of the drastic increase in monthly payments. She also predicted that many will deliberately default as the values of their houses plunge far below the amounts of their home loans.

Olefson predicted that home prices will fall by 5 to 15 percent in 2010, with around 10 percent as the median rate of price decrease.

One economist who predicted an increase in home prices despite the continued influence of foreclosed property sales in 2010 is Lawrence Yun of the National Association of Realtors who predicted a house price increase of more than 3 percent.

Related Posts:

• Foreclosed New Homes Are Being Sold Aggressively in Marin
• San Francisco S&P Index Down, Foreclosed Home Auctions Up
• Foreclosure Home Sales Affect Home Prices Differently
• Housing Starts Drop Amid Commercial Foreclosed Homes
• Repo House Listings Slow Down, Tampa Bay Home Prices Rise