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Home Prices May Not Have Hit Bottom Yet: Survey

Home prices, which have been sputtering along for much of the year, are likely to dip further by the end of 2011, according to the results of a nationwide industry survey of real estate agents.

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Factors driving an expected decline include restricted financing for real estate investors, a large gap between the supply of distressed properties and demand from first-time homebuyers, and the shadow inventory of both foreclosed and short sale properties, the latest ""HousingPulse Tracking Survey"" released Monday by ""Campbell Surveys and _Inside Mortgage Finance_"":http://campbellsurveys.com/housingpulse/Pulse.htm found.

""Rather than trying to discern short-term patterns from the home price indexes, we look at fundamental factors affecting home prices,"" said Thomas Popik, research director for Campbell Surveys. ""If we have several factors pushing in the same direction, we look at this as good evidence of a future trend in prices.""

Since the end of the homebuyer tax credit in the spring of 2010, investors have effectively placed a floor on housing prices, accounting for more than 20 percent of purchases on average, according to the polling company.

These investors have generally been forced to use cash to finance their home purchase transactions. In the June _HousingPulse Survey_ results, 75 percent of investor transactions were financed with cash.

Real estate agents responding to the survey report that most investors are individuals and small groups relying on bank deposits, home equity lines of credit, and borrowings from retirement accounts - all limited sources of cash that can be easily depleted if properties purchased by investors cannot be quickly resold.

The latest _HousingPulse Survey_ also showed the proportion of first-time homebuyers in the housing market fell to 35.4 percent in June, down from 37.3 percent in May.

At the same time, the HousingPulse Distressed Property Index (DPI) fell to 44.7 percent last month, compared to 46.7 percent in May.

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The gap between first-time homebuyers and distressed property supply was 9.3 percentage points in June, according to Campbell Surveys.

In June 2010, the gap between first-time homebuyers and distressed property supply was just 3.9 percent.

The survey firm explained that because current homeowners buy a new residence and sell their old residence nearly simultaneously, their transactions do little to absorb the supply of distressed property.

Meanwhile, to buy and hold distressed property, investors must have access to cash or mortgage financing.

A previous _HousingPulse Survey_ indicated that after a year of absorbing distressed property supply, investor cash is getting depleted. That leaves first-time homebuyers as the next group best able to absorb distressed property supply, but increasingly, first-time homebuyers have trouble qualifying under strict mortgage underwriting guidelines, according to Campbell Surveys.

""No, the housing market has not hit bottom, I believe another 10 percent is possible,"" concluded an agent in Colorado responding to the survey. ""I'm seeing people starting to ask for assistance and short sale information while still being current. They are in the middle range of owners: $300-400K. To me, this indicates that more people are being affected, and they have just been sitting silent on the sidelines.""

Shadow inventory is also likely to weigh on the housing market in the months ahead. Survey respondents stated that both foreclosed properties and potential short sales are sources of shadow inventory.

""There are tens of thousands of homes that have not even received a NOD (notice of default) that have not made a mortgage payment in months or years,"" said an agent in California. ""The NOD's get postponed month after month without a foreclosure. So you tell me. We won't see a bottom until the economy turns in earnest and or the default inventory is exhausted.""

Another agent in North Carolina also voiced concern over the prolonged foreclosure process and what that might mean for inventory numbers.

""I know of some [delinquent mortgages] that have been sitting for more than two years and still the foreclosure process hasn't begun,"" the North Carolina agent noted. ""I think the shadow inventory is going to affect our market for at least 2-3 more years.""

The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey collects and analyzes responses from more than 2,500 real estate agents and brokers nationwide each month to gain insight on home purchase transactions and mortgage usage patterns.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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