Prices dropping but...

Prices still Dropping; but is there an "L" in the Future?

Home prices fell by 4% last year, according to the Standard & Poor's/Case-Shiller index that tracks 20 metro areas. Prices dropped by 1.1% for the three-month period ending in December compared with the same period ending in November.That was slightly better than November's reading, when prices were down 1.3% from October.

A February 29 Wall Street Journal article points out one piece of data that's seldom mentioned: several years of very slow new construction of single-family homes and a falling share of homes selling out of foreclosure means that the supply-side -- actual housing stock -- is growing very slowly. While there's been little rebound to date on the demand side, some analysts see that the eventual recovery might be "L-shaped," indicating a sudden, dramatic increase, when trade-up buyers finally return to the market.

Already in some markets the supply of homes for sale has fallen to a five-year low. While that normally would be a sign of health, real-estate agents in these markets say a shortage of listings is actually holding back sales, reporting that potential move-up owners are simply reluctant to list at values they see as too low to justify a move.

Whatever the shape of the eventual curve upward, it's probably still well in the future on a national basis. The Journal quotes Stan Humphries, chief economist at Zillow, who predicts a 3.7% decline in prices this year.

Kenneth Armstrong

Kenneth Armstrong

Licensed Real Estate Salesperson
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