Fiserv Expects Affordability from Declining Prices to Stabilize Housing

""Fiserv, Inc."":http://www.fiserv.com on Monday released an analysis of home price trends in more than 375 U.S. markets. While residential property values are continuing to fall on a year-over-year-basis in three-quarters of the metros covered in the study, Fiserv sees signs of stabilization on the horizon.
[IMAGE] Based on its analysis of the Fiserv Case-Shiller Indexes and data from the Federal Housing Finance Agency, the Wisconsin-based information and technology provider reports that home prices in the fourth quarter of 2010 continued the double-dip that started in the summer of last year following the expiration of the homebuyer tax credit.

Fiserv's report shows that on the national level, single-family home prices decreased 4.1 percent during the final three months of 2010 when compared to the year-ago period.

However, the company contends that the slide in prices has greatly improved home affordability. Fiserv says relative to household income, affordability is at or close to pre-bubble levels in nearly every metro area across the United States.

This dynamic, combined with growing economic strength, leads both Fiserv and ""Moody's Analytics"":http://www.moodys.com to project that average U.S. home prices will stabilize in the third quarter of this year, with prices in even the hardest hit markets leveling out by the end of 2012.

While Fiserv and Moody's project stabilization in most markets by the third quarter, the companies' analysts are forecasting an additional 3 percent decline in the first half of this year.

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""The first step toward restoring confidence in housing markets is an improvement in consumer sentiment, which we expect will increase slowly through 2011 due to stronger job gains and a falling unemployment rate,"" said David Stiff, chief economist for Fiserv. ""As confidence rises, the decline in home sales that started in 2006 will, finally, come to an end.""

Even as balance returns to the housing market, Fiserv Case-Shiller data forecasts the pace of recovery will be uneven across U.S. metro areas.

""Many metro areas have vast inventories of vacant homes, a consequence of both over-building during the bubble and high rates of foreclosure,"" Stiff said. ""Between the 2000 and 2010 Censuses, the overall U.S. housing vacancy rate increased by 2.4 percentage points. In metro areas with the largest price bubbles and crashes, housing vacancy rates have jumped by 3 to 7 percentage points.""

Fiserv says the most stressed housing markets are characterized by high housing vacancy rates, as well as unemployment rates that exceed the national average.

Examples include Detroit, Las Vegas, and Orlando, where unemployment tops 10 percent and vacancy rates are above 15 percent.

""Economic growth in these markets was highly dependent on residential real estate from 2002 to 2006, with many new jobs tied directly or indirectly to booming housing markets,"" Stiff noted. ""When the bubble popped, these markets suffered the largest job losses. Rapidly falling employment undercut housing demand, causing home price depreciation to accelerate, leading to more job losses in residential real estate.""

The markets that escaped this dynamic are better positioned for more robust recoveries. According to Fiserv, examples of such markets include Dallas, Milwaukee, Houston, New York, Baltimore, and Pittsburgh.

Stiff explained that while many of these metro areas have experienced double-digit home price declines, their economic growth was more balanced during the boom years, relying less on residential construction. He says today, these markets benefit from relatively lower housing vacancy and unemployment rates.