The real estate recovery in the last quarter of 2009 has been supported by mortgage rates, increased lending by FHA (Federal Housing Administration) and tax credits. Now that some of the support is coming off, the market is slowing down again and will adjust to lower values in one of every five US markets, namely 29 areas out of 143, according to Zillow, the site that provides a basic system for price evaluation of houses. Amongst the areas where a second decline is expected by Zillow we find Atlanta, Baltimore, Boston, Denver, Minneapolis, Miami, Portland (Oregon) and Tampa (Clearwater where I live and operate seems to be holding fairly stable).
US real estate market according to Zillow - the graph comes from Zillow.com
Unfortunately the experts at Zillow are not able to actually predict how steep the downturn is going to be in the 29 critical markets. They simply expect it to be a moderate decrease followed by a stabilization with little or no appreciation in the second half of the year. The data available to Zillow are evidently not accurate enough to tell us what is really going to happen, they simply tell us that something is going to happen.
I personally believe that the speed of the downturn will be determined greatly by the speed of release of new foreclosures on the market by banks. There are many properties that are kept in the foreclosure process forever (even more than one year) just to avoid too much pressure on prices that would eventually hurt the selling price for the banks as well. If this policy continues, then we can expect a very slow decrease in some areas followed by a very slow increase for some time, until the foreclosure backlog clears up.
Zillow estimates that the bottom of the slow decline should be reached by middle of this year, after that prices are likely to bounce around the bottom with little appreciation for some time. It is remarkable though that some markets are already recovering nicely, like New Orleans (+ 2.9%) or Tulsa (+5.6%).
Roberto Mazzoni
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