Home prices are expected to fall 5% from current levels by the end of the first quarter and will stay flat for a year before starting to rise very gradually, according to the latest housing and residential credit outlook published by Barclays Capital.
According to Barclays Capital's report, the federal government would most likely intervene further into the housing market if home prices declined into the 15% to 20% range. Barclays also observed that credited federal government programs designed to delay foreclosures have prevented a glut of distressed homes from hitting the market, thus resulting in stabilized prices and limiting the amount of real estate owned (REO) inventory on the market.
However, Barclays Capital argues against a proposed REO-to-rental program raised by the Federal Reserve in its recent white paper on possible housing market solutions.
‘Yields on rental properties are too low on a national level to generate widespread private interest,’ Barclays says. ‘Additionally, it is very difficult to manage thousands of properties throughout the country, especially if they are limited to a few managers. REO rentals could have some success in parts of California and Florida where rental yields are high enough and there is a geographic concentration of REO properties.’
Looking ahead, Barclays Capital notes that close to 4 million homes are seriously delinquent or in foreclosure and will eventually need to be sold.
‘Most homes that are 90-plus days delinquent will be liquidated over the coming years, and distressed transactions will be part of the market for some time,’ Barclays Capital continues. ‘Foreclosed borrowers in most cases still need a housing unit – what matters is total excess supply including owner and rental units. Our base estimate for clearing excess supply, is two to four; there will be regions on either side of this average number.’
The full report is available online.