Are Housing Prices headed Up or Down?

The National Association of Realtors (NAR) has been reporting great news recently. Last week’s Existing Home Sales Report and yesterday’s Pending Sales Report both showed consecutive months of increases in the number of homes sold. Finally, buyers are jumping off the fence and taking advantage of one of the most opportune times to purchase a home in America’s real estate history. With an increase in demand, price appreciation can’t be far behind, can it?

Actually, the answer is NO! Prices are not determined by demand alone but in the relationship of demand to available supply. The inventory of homes for sale is still too high and about to surge higher. Along with the news of increased demand yesterday, RealtyTrac released their 2010 Year-End Metropolitan Foreclosure Market Report. The report showed that distressed properties across the country are on the rise:

… foreclosure levels remained five to 10  times higher than historic norms in most hard-hit markets, where deep  fault lines of risk remain and could potentially trigger more waves of  foreclosure activity in 2011 and beyond.

The report also explained that the foreclosure epidemic is spreading to more and more of our communities:

… foreclosures became more  widespread in 2010 as high unemployment drove activity up in 72 percent of the  nation’s metro areas – many of which were relatively insulated from the initial  foreclosure tsunami.

(Attention KCM Subscribers: The January issue of Keeping Current Matters has the ‘shadow inventory’ of homes coming to the market broken down by state. Use the chart when talking to sellers about future prices in your region. Click here to login.)

What does this mean for prices?

Here are a few quotes from this week.

Washington Post:

The closely watched S&P/Case-Shiller report shows that housing prices, compared year-over-year, have declined nationally for six consecutive months. The downward path suggests that housing prices could, by spring, hit their lowest level since April 2009, said David Blitzer, the index committee’s chairman.

New York Times:

A new slide in housing prices has begun in earnest, with averages in major cities across the country falling to their lowest point in many years.

CNN Money:

Barclay’s Bank analyst Theresa Chen doesn’t expect a reversal in housing market trends any time soon, since there is no end in sight to the foreclosure crisis.

“We expect softness to persist,” she said, “as home prices continue to face headwinds from the large pipeline of foreclosures entering the market.”

Housing Wire:

“… we believe that home prices will continue to weaken on a month-over-month basis until spring, and a year-over-year basis through the end of 2011,” the Radar Logic said.

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