Real Estate Prices To See Dramatic Drop Nationwide for 2011

Even while the U.S. job market improves, the damage that has already been done in the real estate market continues to negatively impact the price of homes across the nation. After a brief upturn, prices are now souring due to a large seller’s market of foreclosed & bank-owned homes.

Real Estate prices in the US have double dipped nationwide, now lower than their March 2009 trough, according to a new report from Clear Capital.

It was inevitable, and it was predicted (by me for sure) that a surge in sales of foreclosed real estate and a big push by banks to facilitate short sales would force home prices down dramatically.

Sales of bank-owned (REO) properties hit 34.5 percent of the market, according to the survey, resulting in a national price drop of 4.9 percent quarterly and 5 percent year-over-year. National home prices have fallen 11.5 percent in the past nine months, a rate not seen since 2008. Add short sales, where the bank allows the borrower to sell for less than the value of the mortgage , and prices have nowhere to go but down.

"With more than one-third of national home realty sales being REO (bank owned), market prices are being weighed down as many markets have not regained enough footing to withstand the strain of the high proportion of REO sales," says Clear Capital's Alex Villacorta.

You don't have to tell Los Angeles Realtor Bill Kerbox any of this. LA prices had been improving, and LA is still one of the nation's best-performing metro markets right now. Recently, however, prices took a turn, now down 2.4 percent quarter to quarter thanks to 34 percent REO saturation.

"We have definitely seen a number of both short sales and foreclosed real estate along the West Side here, and they have definitely taken a hit," bemoans Kerbox. "It hurts to have a very low comp pop up next to your beautiful new home."

While the usual subprime mortgage suspects, like California, Arizona, Florida and Nevada used to rule the foreclosure roost and still have high volumes of distressed properties, the mid-west is seeing a surge in REOs now, thanks to the plain old recession. 40 percent of the Chicago realty market is foreclosures, 43 percent in Cleveland and 51 percent in Minneapolis. Home prices fell 8.7 percent in the Mid-West during the past three months compared to the previous quarter.

While the foreclosure crisis is abating on the front end, with fewer loans going newly delinquent, the pipeline of seriously delinquent loans is enormous. Banks are now ramping up the foreclosure process after the "robo-signing" paperwork scandal, but at their current pace it would take about four years to process all the bad loans through foreclosure and even longer to sell those homes out on the open market.

While buyer demand is rising, thanks to a slowly improving jobs picture, mortgage availability is still very difficult for the low to middle-income borrower, and falling prices don't help already weak consumer confidence in the housing market. If prices continue to fall further, which they likely will in the short term, the number of so-called "underwater" borrowers, those with negative equity, will rise even higher, which could in turn result in more loan delinquencies.