Will Home Prices Bottom In 2011?

CALCULATED RISK has Case Shiller, Price to Rent Ratio, and Median Income to Price graphs all indicating home prices will fall 10%, or just over 10%, nationally  in 2011.  I agree– unless there is second dip recession or further financial crisis.

Local markets are different.  California has a one year hidden inventory of unlisted REOs, not yet foreclosed defaulted mortgages (320,000),  and homeowners in default without recorded notices of  default, with a total shadow inventory of 464,000 homes and listed inventory of 142,000.  Further,  California has a price to rent ratio  much higher than other markets in most of the state, 1.4x ; a much lower median income to price ratio in coastal California, and a much higher unemployment rate than the rest of the nation, 12.7%.

I agree with Fitch’s rating service– coastal California can expect to see a further 35% decline in home prices in 2011-2012.  Not calculated is the projected negative domestic migration out of coastal California the Legislative Analysts Office estimates at -224,000 for 2011.

Nationally the projections are good for housing.  But it doesn’t fix the broken mortgage market which could change these projections.