Are Home Prices Finally Bottoming Out?

Home prices are still dropping and few analysts expect housing prices to rebound anytime soon, but there are some economists that are predicting that the market is close to the moment when things will stop getting worse, and that alone will be a major improvement.

Home values fell 0.8 percent in March from the previous month in 20 large U.S. cities, according to the closely watched Standards & Poor’s Case-Shiller National Home Price Index. That pushed the index below its level of two years ago to a new post-bubble low, and put it 33.1 percent under its July 2006 peak. “Home prices continue on their downward spiral with no relief in sight,” said David M. Blitzer, the S.& P. Index Committee chairman.

Even before taking inflation into account, housing prices are now back to where they were in mid-2002. To the boosters and many of the analysts who during the housing boom were fond of saying that house prices never fell on a national basis, such a decline was unimaginable. But as easy refinances disappeared and credit dried up, the foreclosures began, and home prices fell sharply in late 2006, 2007 and 2008.

The housing market experienced a brief recovery period in 2009, prompting hopes that the worst was over. But after homebuyer tax credits expired last April, the slump resumed.

Paul Dales of Capital Economics expects the market to slip 5 percent further, slightly more than he was expecting a few months ago. Dales added “There are some amazingly favorable signs. Housing is the most undervalued it’s been in 35 years, and at some point, it’s going to do very well.”

Senior principal of Maximus Advisors, Peter Muoio says he expects the housing market to bounce around in a narrow range for a few years rather than recovering but thinks the market has already bottomed.

“There's a lot of pent-up demand for housing and someday it will be unleashed,” said James F. Smith, chief economist for the investment firm Parsec Financial, and added: “Your guess is as good as mine when it will come.” Mr. Smith is predicting a 25 percent climb from here by mid-decade.

Dean Baker, co-director of the Center for Economic and Policy Research, expects a 6 to 8 percent fall during the rest of the year. “There are a lot of forces pushing prices downward,” he said. One of the forces is the excess number of houses.

Some economists believe the wild card is consumer confidence. The United States Conference Board reported this week that its consumer confidence index unexpectedly fell to 60.8 in May from a revised 66 in April and that the May level is the lowest since the fall.

People without confidence in the economy and their own prospects tend to put off major purchases.

“People are still scared,” Douglas C. Yearley Jr., chief executive of the high-end builder Toll Brothers said in a recent interview. “If they look in the paper and see that Robert Shiller says prices have another 20 percent to go, it has to keep them at home.”