Housing recovery forecast cloudy with a chance of more foreclosure fallout

housingrecoverychart

A surge of foreclosures expected to hit market later this year will take some of the wind out of the housing recovery before there’s real smooth sailing.

Standard & Poors Rating services says recent home price rises aside, the crippled economy can only support a mediocre housing recovery in the near future.

S&P’s July report, “U.S. House Prices Should Generally Rise Going Forward, But Not Without Some Dips,” is a mixed bag extolling housing markets that are recovering, but forecasting it’ll be 2023 before home prices return to mid-2006 peak levels.

That assumes a home price appreciation rate in line with a 4 percent household income growth rate.

In the near future, certain foreclosures that have yet to hit the pipeline will cause some backsliding in prices.

Drawn out foreclosures in states with judicial foreclosures (considered part of a ‘shadow inventory)’  is the problem. The inventory of foreclosures continue to grow in judicial states, S&P reported.

“We expect these drops to occur in tandem with new foreclosed properties reaching the market later this year,” said credit analyst Erkan Erturk.

“The U.S. economy is currently growing at too slow a pace to have an impact on the housing market, and we believe that certain economic factors, such as weak employment growth and the Euro debt crisis, could somewhat stymie the housing recovery,” Erturk.

The S&P/Case-Shiller 20-City home price index rose 1.3 percent month-over-month in April after drops for seven consecutive drops. Prices are now 34 percent below the mid-2006 peak.

In another report, CoreLogic’s home prices rose 2.5 percent in April and 1.8 percent in May, the second and third straight monthly increases, respectively.

The Federal Housing Finance Agency’s report also yielded (FHFA) price gains. It’s index was up 1.7 percent, the third monthly gain.

S&P expects prices to continue to rise through the summer with seasonal demand, but not without some backsliding during the winter, only to resume rising next year.

Prices are getting a boost from inventories reduced by mortgage modifications, negative equity, and slowing foreclosures, but recovery will be spotty with regional variations as some areas recover faster than others.

Instead of selling, many homeowners are also cashing in on lower rates to refinance to a more affordable mortgage.

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