S&P: Home Prices May Drop Another 10%

S&P has issued a forecast which says home prices could drop another 10% through next year.

The new research says that:

“While U.S. home prices have stabilized considerably since the recession officially ended in mid-2009, recent housing data suggests that the winter season will likely chill recently improving home prices, according to a new report published by Standard & Poor’s Ratings Services In line with this expectation, Standard & Poor’s Ratings Services believes home prices will decline an additional 7%-10% through 2011.”

The news is shattering. The S&P Cash-Shiller Index has shown some improvement, albeit modest, over the last few months. But, foreclosure rates have increased according to RealtyTrac. The number of mortgages underwater still stands at over 11 million, about 21% of all home loans in the US. Fed governor Rifkin recently commented that foreclosure rates would get no better in 2011 and would barely improve in 2012.

The report indicated that the reasons for the forecast were few but powerful. “An elevated, but declining level of short sales and distressed asset sales; a large backlog of distressed properties that have yet to be re-marketed for sale; and a high national unemployment rate”

And, joblessness is probably at the very core of the matter. Nearly 17% of Americans are either unemployed, barely employed, or no longer seeking work. They are essentially not only out of the home buying market, but are foreclosure risks.

The other reason for the nation’s “buyers strike” is the April expiration of federal home buyer tax credits. That, combined with a fear that home prices have further to drop, makes the concerns a self fulfilling prophecy.

Douglas A. McIntyre