Future Home Prices in the Metro East

So where are we heading?  Will my home be worth more or less in two years?  Should I wait or do it now? Advising clients on the future of our housing market so they can make good decision is part of my job as a Realtor.  Keeping informed is a challenge because the factors affecting our future, both economic and political, seem to change quickly.  Filtering solid information from the news is critical.  My clients often see headlines and news broadcasts where interpretations of exactly the same data or event vary extremely.  “The market is back!” to “Here comes the second crash!”  The news is often misleading and aggravating.  It is safest to only focus on near term market conditions, but helping clients make decisions based on a realistic view of the future is part of the job. OK, it’s crystal ball time again. 

In this post, let us examine a snapshot of several strong national factors that will very likely affect home prices nationally, and examine them locally in the metro east of Saint Louis.  Reliable analysts are predicting a further slide in home prices in the next several years.  Other sources, of course are “pumping sunshine” that we have hit the bottom and are firmly on the road to recovery.  Keeping a view of the national economic health of the nation is important, of course, to all of us.  Which view is probably correct and why?  Two factors are being touted to erode prices over the long run. One is the “shadow inventory” of homes that are owned by banks or near foreclosure, but not yet on the market.  Many sources estimate there is a bubble of 4.5 million properties in this shadow inventory, many expected to come onto the market soon as banks attempt to sell them. These foreclosed properties will increase the supply of homes dramatically, and they are priced low because of their condition.  That tends to depress the sales value of all other homes. The second factor predicted is an increase in mortgage interest rates within the next year, which changes the dynamics of home buying.  Just a one percent increase can significantly raise potential payments for households already facing economic pressure.  Decreasing the buyer pool would put downward pressure on home prices.  These two factors seem to be likely forces that will drive home prices down nationally over the long run. 

Let’s take a closer look at these predictions on a geographical basis.  Where in the country may we see these trends? Here?  One of the sources I look to is PMI, Inc, a national company that underwrites or insures mortgage loans.  They have an inherent interest in the future value of property held as collateral and the subsequent risks of their loans.  The data they use is extensive and beyond what we can examine in this short post, but their national view is interesting to us.  They recently published a chart (below) that shows the probability of home prices being lower in two years than they are today.  In the red areas of the country, for instance, they predict that it is 100% certain home prices will drop over the next two years.  In our area, they indicate only a 30 to 50% chance that home prices will be lower; or about a 50 to 70% chance they will be higher.  We might well question their ability to predict the future (a real hazard in today’s turbulent times, and did they see the crisis coming in the first place?)  However, the relatively lower risk in our area that they predict is useful, and it makes sense based upon our experience.  Our market did not see the same extreme changes in the past that others have.  Certainly we did have a bubble in home prices, have suffered through drops in value, foreclosures will probably increase in our area, and an interest rate increase would affect us.  The national problems will continue to be felt and reflected here. When we see or hear about national trends, however, they must be tempered by our relatively stable economic conditions.  Need I say it?  OK, all markets are local! 

So what’s up today?  I observe we are on a plateau for now, and I think it will last through the next few months at least.  The spring influence has brought a normal increase in market activity and slight increase in prices.  Homes that are priced right for the present market conditions are selling well. Many buyers realize the great opportunity offered by this market.  I will say though, that the mix of homes that make up the market place is also very complex.  If you could consider for a moment the full range of homes for sale, all reflecting the perspective of their owners and agents. and could imagine the full range of opinions and feelings of potential buyers, and their agents, you could easily get a sense of what I mean by complex.  Add a mix of property conditions from move-in ready to distressed properties with special purchase requirements and you see the market as something we’ve never experienced before.  It’s good, but different. There has never been a time when it is more important to rely on a professional Realtor.  Get one today, smile. 

Future prices?  Our local economy and unemployment level are key factors, of course.  Trying to get into a local restaurant on a weekend indicates to me that all is well, but in reality a lot of family budgets are pinched.  Overall and in the long run, I believe national factors will keep home values from appreciating in the next few years like many of us home owners would like, but it depends greatly upon price range and even neighborhood.  We need to get used to this market, and have a realistic understanding of costs, price and value.  It will be here for a while.  It is a soft and bumpy bottom, at best.