Posted on Tuesday, November 2, 2010
The analysts at Capital Economics say that dreaded double-dip is already underway, in both housing activity and residential property prices.
“It is becoming clear that the housing market cannot stand on its own two feet,” said Paul Dales, U.S. economist for the international research firm.
Dales and his team are forecasting home prices in the United States to steadily decline over the next 12 months. The Capital Economics House Price Model suggests that by the end of next year, prices will have fallen back by just over 5 percent, taking them to a new cycle low.
“Prices may not regain their previous peak for a decade,” Dales said.
The agency says in an upside scenario, in which the economy is stronger than its analysts expect, prices may
not fall. In a downside scenario, though, prices could drop by another 20 percent.
According to Capital Economics’ latest report on U.S. housing markets, Illinois, Florida, California, and Nevada appear the most vulnerable to further home price declines. Alaska, the District of Columbia, Maine, and West Virginia seem the best placed to weather another downturn.
Mortgage applications for home purchase have remained weak despite the plunge in mortgage rates to a record low. Capital Economics says “even the mortgage bargain of a lifetime has not been enough to bring the market back to life.”
The company’s analysts predict housing demand will remain “unusually weak” for at least the next three years. At the same time, supply is set to stay “unusually high.”
Relative to today’s demand, Capital Economics says there are currently about 1.5 million too many homes up for sale. And a steady flow of foreclosures will mean that excess supply will continue to grow.
According to Capital Economics’ report, the bulk of the 2.5 million households that are already in foreclosure and the 2.4 million that are at least 90 days past due will at some point be put up for sale.
“The economy will not be able to support a decent housing recovery,” the company’s analysts wrote. “Income growth will stay muted, unemployment will stay high, and the threat of deflation will rise.” Carrie Bay