Although the housing market looked like it might have been on the road to stabilization in early 2010, the second half of the year dashed those hopes. Ultimately, housing prices ended the year down 4.1%, according to housing industry consulting firm Clear Capital. The company released its 2010 report today, which includes 2011 forecasts. In short, 2011 won't be much better than 2010.
The best place to start to think about the past and future would be with this very revealing chart that Clear Capital provides (click to enlarge):
First, consider the big picture. National home prices have fallen an incredible amount from their 2006 highs. After rising during 2009 and part of 2010, they've begun falling again, and will continue to decline in 2011. Clear Capital predicts a 3.7% drop this year, which is quite similar to 2010's fall.
But let's look for a moment at 2009 and 2010. This chart certainly appears to show something of a double-dip: home prices were rising again, only to fall in late 2010. In fact, it almost looks like a triple-dip. What was going on here?
In fact, it's pretty easy to explain. You can see that prices began rising towards the end of the first quarter of 2009 -- that's when the home buyer credit's effect began to be felt, having passed by Congress as part of the big stimulus package. Prices began steadily rising until late 2009, when the credit was renewed and the urgency to buy a home was reduced. But its final expiration in May 2010 prompted another rush in the second quarter to buy a home, increasing prices even further. Then the program truly ended, and demand plummeted, causing a steep fall in prices in the second half of 2010.
It's not often you get to see poor political policy so easily demonstrated, but this picture couldn't more clearly prove that all the home buyer credit accomplished was a temporary stimulus. Now that it's gone, the housing market will continue to search for its bottom, which it was prevented from hitting in 2009 when the credit was passed.
The chart also shows what an incredibly volatile year 2010 was due to the credit's influence. By contrast, 2011 will have fewer ups and downs, as prices slowly recede throughout the year.
Clear Capital also provides some metro-area data on home prices. Although the severity of housing's struggle has become somewhat more regional than national, home prices still broadly declined. The report says that prices fell in 70% of major markets last year. Eyeing its predictions for 2011, this high percentage might not change much.
Of the 50 major metro areas that Clear Capital considers, here are the best and worse performers of 2010:
As though anyone needs another reason to move to Hawaii. For this same list of metro areas, Clear Capital also predicts 2011 performance price changes:
So what will drive home prices according to Clear Capital? Pretty much what you would guess: unemployment and foreclosures. To the extent an area has a high rate in either or both of those metrics, home prices will suffer.
In general, the housing market will remain weak throughout 2011. The silver lining, however, is that it will be less volatile. We should see the market stabilize rather nicely in a couple of areas, while prices continue to fall in others struggling to climb out of their recessionary trough.