Outlook Dims, Even for Non-Bubble Housing Markets: Report

New data released this week suggests the nation’s housing malaise, largely confined to some of the most overheated housing markets nationwide thus far, is now spreading even to areas that have, thus far, remained resilient in the face of an industry downturn. In a year when home prices across the U.S. have fallen 15 percent, the housing market in several metropolitan markets that have to date shown resilience are now falling in line with the national downward trend, according to an analysis of home price trends in more than 375 U.S. markets based on the Fiserv Case-Shiller Home Price Index. For those that might be confused over the Case-Shiller tie-in here, don’t be: Fiserv, Inc. (FISV) provides the data used for the well-known Standard & Poor’s Case-Shiller indices in 20 key markets, and for a quarterly national index published by S&P. But the firm also recently began publishing its own Case-Shiller data for 375 different metropolitan markets, as well, and integrates its data with supplemental HPI data from the Federal Housing Finance Agency. “The weakening housing picture is broad and deep,” the company said in a press statement earlier this week. “[H]ome price forecasts have been revised downward for nearly all the 375 metro markets evaluated by Fiserv.” Among the markets where the outlook for housing prices has dimmed are suburban New York City markets of southern Connecticut and central New Jersey, reflecting job losses on Wall Street and at hedge funds, as well as anticipated cuts in year-end bonus payments. Average house prices are forecast to decline 12 percent through June of next year, Fiserv said — a faster rate than the 7 percent decline already observed in the most recent 12-month period. In the Edison and New Brunswick, N.J. metro area, which is home to many pharmaceutical companies, home prices are forecast to fall 19 percent over the next year. One-time bubble markets in Florida, California, Nevada and Arizona, which have already seen home values fall 20 to 40 percent over the past year, showed no signs of moderation in declining prices through June, Fiserv said — putting its data at odds with competing data elsewhere that has suggested recently that the pace of price declines have been moderating in recent months. In the Merced, California area, for example, average home prices have declined 43 percent over the past 12 months, and are projected to fall another 22 percent by the middle of 2009, the data provider said. Similarly, housing prices in Tucson, Arizona are forecast to decline 26 percent over the next year, after falling nearly 13 percent over the past 12 months. Nationally, median home prices have fallen 15 percent over the past year to $206,000, according to the National Association of Realtors. Over the next year, Fiserv forecasts that the average metro area will experience another 13 percent drop in home prices. “The 2008 second-quarter Fiserv Case-Shiller home price index numbers were weaker than expected. In part, this was due to the credit market problems as fewer households were able to qualify for mortgages as lenders continue restricting lending standards,” said David Stiff, an economist with Fiserv. “In many collapsing bubble markets, there was also a flood of home foreclosure sales, which increased the downward pressure on prices.” “Bubble markets in states including California and Arizona continue to see falling home values while markets in historically strong markets in Texas and the Northeast are starting the see home values decline as well,” added Stiff. Nonetheless, there is at least some reason for optimism. “Because home prices are falling so rapidly, housing affordability is improving quickly in over-priced markets. When the mortgage market does stabilize, there is the potential for a sudden rebound in housing,” said Stiff. “But if the recession causes household incomes to drop, that rebound will be pushed out even further.” Early evidence pointing to a drop in household incomes, then, can’t come as particularly good news for the already-battered housing market. Write to Paul Jackson to [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.