ONLY THE SHADOW KNOWS
Not everyone is convinced that statistics tell the whole story, though. A scan of press reports produced more skeptics than adherents of the idea that home prices have reached a bottom. A recent Bloomberg article, for example, found only two votes for near-term stability, while five other experts saw prices falling by as much as 15% over the next few years.
Why the doom and gloom amid encouraging data? One reason is the threat of a "double-dip" recession. "We think a second round is reasonably likely," says Rob Arnott, chairman of Research Affiliates in Newport Beach, Calif. According to Arnott, just the threat of a tax boost could cause affluent consumers to spend less and turn a fragile recovery into a renewed recession. That would be troublesome for housing prices, which could fall another 10%-20%. "We don't see a bottom in housing prices until 2012," he says.
Arnott also mentions the huge "overhang" of houses that are in or near foreclosure as a factor that will increase the supply of homes on the market and thus put a lid on prices. This is the so-called shadow inventory of properties that are not on the market now but soon may be on sale. Some of those properties are held by banks after a foreclosure; others still belong to homeowners in some pre-foreclosure stage.
By some estimates, this shadow inventory is as large as seven million homes, which could go on the market in the next few years. Today, there are about four million existing homes for sale in the United States. If seven million homes are added, more than doubling for-sale listings, the surplus of sellers over buyers could drive down home prices even further, bearish forecasters predict.
WHERE CREDIT WAS DUE
Besides the shadow inventory, bears on housing prices point to another reason for doubting the staying power of recent home price stability-the expiration of housing tax credits. Throughout 2009 and into the second quarter of 2010, certain home buyers qualified for federal income tax savings of up to $8,000. According to NAR, an estimated 4.3 million home buyers were eligible to use the tax credits, including one million who might not have bought without the tax break.
If those million home buyers had kept their checkbooks closed, leaving an extra million homes on the market, prices probably would not have stabilized in 2009-2010. Now that the tax credits have expired, with no apparent renewal in sight, will flagging demand lead to a resumption of home price declines? "We see some footing in housing prices, but we're not far enough from the housing tax credits to see how solid the bottom is," Luschini says.
Perhaps the lack of tax credits won't cause a double-dip in home prices. "Our forecast for 2010 is for home prices to be essentially unchanged nationally from 2009," says Walter Molony, a spokesman for NAR. "Unless home sales remain depressed for more than a few months, we don't expect an impact on prices. Prices have overcorrected in some areas; homes are selling for less than replacement construction costs in many markets."
By: Donald Jay Korn
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