Residential Housing

While home prices have recently risen, as noted by S&P/Case-Shiller, others site three reasons for home prices to head lower: a coming wave of foreclosures, rising interest rates and the eventual end of the tax credits.

There are nearly 5 million houses and condos now delinquent on their mortgages and likely to go through foreclosure in the coming months. This represents more than half of the 7.7 million households now behind on their mortgage. However, John Burns, CEO of John Burns Real Estate Consulting Inc, concludes that there is strong investor demand for these properties, and with continued low interest rates and recovering employment, these sales won’t have much impact on overall home prices.

The S&P composite index of 20 metropolitan areas shows signs that home prices stagnated in December and a recent Reuter housing poll of economists said the bottom had probably been reached but prices were unlikely to gain this year.

Brian Wesbury, chief economist at First Trust Advisors said that if Americans don’t start focusing on building new houses, the market will have a much bigger problem on its hands…short supply.

“We need one and a half million houses per year just to keep up with population growth... And then if you throw in, you know, fires and tear-downs and just worn-out properties, we need 1.6 million or more per year. Right now, we’re down to about six and a half, seven months’ inventory whether you look at new homes or existing homes.” Wesbury said.

Commercial Real Estate

In a letter sent to Fed Chairman Ben Bernanke, the FDIC and Office of Thrift Supervising, Sen. Christopher Dodd (D, Conn) urged regulators to “redouble” their efforts to deal with the unstable commercial real estate market. “I believe that the weakness in the CRE market requires prompt and robust responses from the regulator to guard against harmful effects on financial instructions and the economy,” said Dodd.

Regulators expect banks to report higher delinquencies and charge-off rates for commercial real estate properties and a decline in credit performance of income-producing properties in the first three months of 2010, FDIC Chairman Sheila Bair commented in a speech last month.