The beaten-down housing market is expected to sink further this year and prices will virtually flatline in 2012, a Reuters poll predicted.
While theeconomy has slowly been recovering from the worst recession since the Great Depression, a housing market rebound has remained elusive despite multi-billion dollar federal programs and record low interest rates.
Home prices -- as measured by Standard & Poor's 20-City Composite Home Price Index -- will fall 5.0 percent in 2011 as a whole before finding a floor and rising just 0.5 percent in 2012, according to the median forecast of the 21 economists who provided price forecasts in the Reuters poll.
The findings were bleaker than those of the previous Reuters housing poll in March, which saw prices falling 2.3 percent this year and rising 1.2 percent in 2012.
A rise in "distressed" home sales at depressed prices has helped clear a backlog of homes for sale on the market, but a glut of homes for sale still remains. The rampant pace of foreclosures hitting the market has abated but is still grim with more than a quarter of homeowners owing more on their mortgage than what their homes are worth.
This negative equity not only prevents homeowners from selling but these borrowers tend to be more prone to defaults and foreclosures.
"It is hard to see the housing market doing better until the massive headwind of foreclosures is removed and that will likely take a couple of years," said Mark Vitner, senior economist at Well Fargo Securities in Charlotte, North Carolina.
By the third quarter of 2011, the pace of U.S. existing home sales will only edge up to a 5.10 million annualized rate compared with 5.05 million in April, according to the median forecast of 22 economists who gave an outlook for sales.
Forecasts for changes in the CaseShiller price index next year ranged widely, from a rise of 5 percent to a fall of 6 percent, highlighting the differences among economists on whether the housing slump has played out.
Home sales have mostly been falling since the expiration of popular home-buyer tax credits last year. Home sales in April, the most recent month available from the National Association of Realtors, was 12.9 percent below its year-ago level.
With home prices still falling, many potential buyers are sidelined and banks are more stringent with loan applications and credit scores, Wells Fargo's Vitner said.
"It is not that I am pessimistic about the housing market, it is just that I am not optimistic and a gradual recovery probably will not happen until 2013 or 2014, with a full normalization not until 2015," he said.
Another contributing factor to the dour outlook for the U.S. housing market is stubbornly high unemployment and underemployment.
Home prices will fall another 3 percent from their current levels, according to the median forecast in the poll.
The total price drop from the peak of the housing market in 2006 will be 35 percent, the poll showed.
One glimmer of hope for the hard-hit U.S. housing market is the high level of home affordability.
The average 30-year fixed U.S. mortgage rate will probably settle at 4.82 percent this year, the poll showed, up from a rate of 4.49 percent in the latest week.
The rate touched 4.19 percent in mid-October of 2010, the lowest since 1951, according to U.S. mortgage finance agency Freddie Mac, and economists say rates below 5 percent are historically low.
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