Why Your Home May Decline in Value

With foreclosures picking up steam, interest rates likely on the upswing and an imminent deadline for tax-favored home purchase credits, the possibility of U.S. homes once again declining in value is higher than most Americans may think. Here’s the case for a decline in home values in 2010.

First, the major news outlets are pumping an economic recovery for 2010, led by a resurgent housing market. But a growing number of economic analysts just aren’t buying it.

Here’s a quick rundown:

• According to the analyst firm Fiserv, U.S. housing prices will decline by 11.3% by July of this year.
• The financial Web site Economy.com (owned by Moody’s) predicts that housing prices will fall by as much as 10% for 2010.
• Mortgage servicer LendingTree.com calls for a 5%-7% fall in average U.S. home prices for the year.

Why the glum outlook? And weren’t we supposed to be out the housing mess by now?

Holding the housing market back are two major economic themes — jobs and foreclosures.

Right now, the U.S. unemployment number is at 10%, as the economy shed 7 million jobs during the Great Recession. Some economists wonder if those jobs will even come back, which lends credence to the naysayers who call for a continued drop in U.S. home prices in 2010.

Foreclosures continue to threaten a housing market recovery. According to statistics compiled by ForeclosureListings.com, total U.S. foreclosures stand at 584,199 and homes in “pre-foreclosure” number 655,499. It’s the latter number that worries economists. With hundreds of thousands of foreclosures roaring down the track, it makes it that much more difficult for home prices to creep upward.