Fannie Mae Economist: Housing Recovery In 2013

Fannie Mae’s Chief Economist, Doug Duncan, predicts national housing markets will not recover until 2013. He predicts prices will decline another 1% to 3% before bottoming in the third quarter of this year.

Zillow’s Chief Economist, Stan Humphries, voices similar sentiment. He predicts housing markets will remain under downward pressure as “tremendous shadow inventory” of distressed properties continues to delay recovery. Humphrie’s prediction is lower to flat housing prices for another 3 to 5 years.

Shadow inventory refers to properties held by banks and homes that have been foreclosed on, but have yet to hit the market. Estimates of the number of homes waiting on the sidelines in distressed conditions range from 2 million to 8 million. In general, this represents roughly a full year’s worth of sales volume that must be cleared before markets can begin to function normally. Shadow inventory can be lethal to real estate markets.

What Does This Mean For Southern California?

Our best guess is that national and regional housing market issues will continue to manifest themselves throughout southern California, including the South Bay. We are not immune to shadow inventory threats, nor insulated from the deflationary credit cycle threatening real estate markets worldwide.

We feel that South Bay, in particular, Manhattan Beach, housing prices will deflate roughly 4% to 9% by the end of 2010, on an inflation-adjusted basis.

Beyond that it depends on macro economic conditions, and whether or not the financial system and labor markets recover. If economic recovery takes hold then we believe housing prices will stabilize; however, if economic conditions continue to deteriorate, then housing will have significant downside movement.