Home prices will decline by 40 percent in the third and fourth quarter next year as more foreclosed new homes enter the U.S. market, based on a price forecast by Michelle Meyer, economist of Barclays Capital.
Meyer predicted that foreclosures will reach their peak levels late next year.
The economist based her forecast on a survey by Reuters and the University of Michigan showing the belief of consumers that it is now the right time to buy because of low mortgage rates and low prices of foreclosed new homes and other homes.
She predicted that the sales of foreclosed new homes and other pre-owned homes will reach 5.41 million next year, up from the expected sales of 4.75 million this year. She also predicted that sales of newly-built homes will increase to 440,000 units next year, up from the expected total sales of 350,000 units this year.
Based on Meyer’s sales forecast, sales of foreclosed new homes and other existing homes are still far above sales of newly-built homes.
Meyer released her home sales and price forecast just two days after Standard & Poor’s Corp. released its Standard & Poor’s/Case-Shiller 20-City Home Price Index which showed a year-over-year home price decline of 18.1 percent in April this year.
The S&P/Case-Shiller price index has been tracking the prices of single-family houses in 20 of the country’s largest metro areas since 1987.
The index also showed that home prices have declined by more than 32 percent from their highest level in 2006. Home prices would need to decline by a further 11 percent to get to the 40- percent price decline predicted by Barclays economist Meyer.
The S&P/Case-Shiller study said that the current pace of foreclosures could endanger metro areas which have not reached worrisome levels of home prices. The study mentioned Denver which had the smallest price decline – 4.9 percent – which could increase if the foreclosure problem widens further its reach.
Based on the S&P data, New York City was the only large metro area which had an above-average month-to-month home price declines both in March and in April. House prices in New York had an overall decline of 12.5 percent in April compared to April 2008.
Meyer expects an increase in sales of foreclosed new homes and other pre-owned homes as she expects an annualized growth in the country’s gross domestic product starting this third quarter.
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