The markets that experienced the greatest price bubble – including certain metro areas in California, Florida, Arizona and Nevada – will not see home prices return to peak levels until 2025 or later, according to new research published by Fiserv Inc.
Many other markets, including major urban centers in the Northeast and industrial Midwest, may need to wait a decade or more until prices return to their market peaks, according to the company's analysis of home-price historical trend data and forecasts, which was based on the Fiserv Case-Shiller Indexes, data from the Federal Housing Finance Agency (FHFA) and Moody's Economy.com.
"Nationally, Fiserv Case-Shiller data points to a further seven percent decline in home prices through the end of this year, with a prolonged recovery beginning early in 2011. In many markets, the emphasis is on the word "prolonged,'" says David Stiff, Fiserv's chief economist. "We see several powerful forces in the market that will severely hinder the housing recoveries of many metro areas, particularly in the hard-hit states of California, Florida, Arizona and Nevada."
While the bubble markets have received the greatest attention, there are other dynamics affecting the pace of home price recovery in other regions. High levels of unemployment associated with the recession and the steep decline in manufacturing jobs has reduced housing demand and prices in many metro areas in the industrial Midwest, including Michigan, Indiana and Ohio. Such markets, at the epicenter of job losses in manufacturing, are not expected to return to peak levels for at least five years, and potentially for more than a decade.
A protracted recovery in home prices is also expected in many urban neighborhoods where predatory lending was most rampant, Fiserv says. During the bubble years, home prices in those areas rose rapidly from very low levels. These markets include neighborhoods in cities such as Minneapolis, Memphis and Chicago.
"The picture is not uniformly grim," Stiff continues. "In fact, our analysis projects that some markets are poised for a relatively fast recovery, including some areas that never experienced large declines in prices. Markets that could see prices come back within the next few years include Pittsburgh; Columbia, S.C.; as well as several metro areas in Texas, Washington and upstate New York."