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Price Drops Seen for 2011

The recession may be slowing down and home prices gradually climbing back up, but Orange County home builders were warned earlier this week that its effects will be felt well into 2011, particularly in terms of home prices and home sales.

Forecasts from economist Chris Thornberg showed that home prices will go down again in 2011 after enjoying a slight rise in 2010, as a result of higher interest rates and the “shadow” foreclosure inventory that have mounted in the past few months.

At the annual outlook meeting at the Orange County Building Industry Association, Thornberg added that the prices may go back up again in 2012, albeit only slightly. At best, he said, we should expect a weak recovery over the next several years.

Home prices for 2011 are expected to drop from $491,679 to $488,133, and to rise slightly again the following year to $496,418. Slight increases are expected all the way up to 2014, where the numbers are expected to peak at $564,316.

The price movements are proportional to the building permits issued and total sales expected. In 2011, a little over 3,000 building permits are expected to come out, which would lead to 22,616 home sales. This is slightly lower than in 2010, where the government issued 2,362 building permits and builders sold 23,501 new homes.

Thornberg also said that the housing slump has been in the making for the past 15 years, rather than an overnight drop as most experts have made it seem. Low savings among consumers and poor spending habits have led to huge deficits in foreign trade, which has had a strong if subtle impact on the economy.