U.S home prices fell 2% in the third quarter according to CNNMoney.com. The S&P Case-Schiller Home Price INdex has recorded gains in four of the previous five quarters, including a 4.7% jump between April and June 2010. This leaves national home prices down 1.5% year over year and off 2% compared to the second quarter.
Some of the decline is being attributed to the end of the government program that paid tax incentives to home buyers. However, there are other problems weighing on the housing market, such as the national economy, the lrage supply of homes on the market, and the hidden supply due to delinquent mortgages, pending foreclosures and vacant homes.
Brad Hunter, the chief economist at www.MetroStudy.com, believes that the decline will continue due to supply and demand. The National Association of Realtors is reporting the October inventory of homes to be close to 3.9 million. It would take 10.5 months to sell through all of the current product. In a normal market, there is usually a six month supply.
The sluggish economy has kept the demand for homes from growing. Not only has unemployment remained high, but many employed workers are worried about losing their jobs. If you are worried about losing your jobs, you are not going to buy a home. However, many including Joseph LaVorgna, chief U.S. economist for Deutsche Bank, are optimistic about the job situation. Tax receipts and jobless claims indicate that household employment prospects are rising sharply according to LaVorgna. He feels that if the labor data improves significantly, homes prices should prop up home prices.
I share this belief. Once people start to have confidence in their employment and ability to earn, they will be much more likely to purchase a home. Therefore, demand would increase and the large inventory of available properties would decrease – driving pricing upward.