House prices in the US will manage a small gain in 2010 after the worst crash since the Great Depression but gains in coming years are likely to come slowly, a Reuters poll found.
Home sales and prices may retreat in the near-term after government tax credits to homebuyers as large as $8,000 ended on April 30, economists and property market analysts said.
But that trend will be countered by historically low mortgage rates and the fact that housing affordability is now near the best it has ever been, likely putting prices back on a slow upward path.
Three-quarters of the economists polled May 14-19 said it was possible that average house prices would return to where they were in 2006 before the crash - which would require a rise of more than 40% - but that it would take a long time.
Home prices as measured by the Standard & Poor's/Case-Shiller 20-city index should rise 1.4% this year and 3% next year, breaking three years of sharp declines, according to the median forecast.
Despite a flurry of good news on the US economy and a return to job growth, this is only slightly more optimistic than the February poll, which concluded prices would stagnate.
“The recovery is likely to be longer and more arduous than many expect,” said John Silvia, economist at Wells Fargo.
Unemployment is hovering near 10%, foreclosures remain stubbornly high and the latest batch of housing data underscore the halting pace of recovery.
US home building permits to build fell to a six-month low in April even as starts soared. And demand for home loans sank to a 13-year low last week despite mortgage rates near record lows around 5%.
In recent weeks, the European debt crisis has ignited a flight to safety in government bonds that has cut Treasury yields used to set those mortgage rates. Some analysts said that was a welcome boost for the struggling housing market.
The US economy - suffering for three years from the spectacular implosion of the sub-prime property market - should expand 3.1% this year, according to a Reuters poll of economists last week.
RESILIENCE AFTER TAX CREDIT
The homebuyer credit, which the government expanded and broadened to include repeat as well as first-time buyers, stole many future sales as buyers rushed to lock in deals before the April 30 deadline.
Buyers put away their checkbooks in the first weeks after the credits of $6,500 for repeat buyers and $8,000 for first-time purchasers expired.
But there are reasons to be optimistic. Most economists say the recovery now can be sustained without government help and that home prices are fairly valued, the same rating they gave in a poll taken three months ago.
An improving job market should also slow the explosion in foreclosures. But banks still need to put the record supply of repossessed houses on the market, which will keep prices from recovering very quickly.
“At this point, we don't expect prices to hit their previous high until 2017, at best,” said Ellen Zentner, senior economist at Bank of Tokyo-Mitsubishi.
Three of 31 economists polled even saw further slim price declines in 2011.
“A toxic combination of weak demand and high supply will generate a double-dip in prices now that the tax credit has expired,” said Paul Dales, US economist at Capital Economics, who expects a 4% fall in prices next year. (Reuters)