AUSTIN, Texas — At least the real estate industry has 2013 to look forward to.

Continuing foreclosures and an "overhang" in housing inventory will likely prolong the housing slump for several more years, said economists who spoke Friday during an annual meeting of the National Association of Real Estate Editors.

While home sales likely reached the bottom of the current cycle last year, home values in many markets are still in decline, said Stan Humphries, chief economist for online real estate search and information company Zillow.

"The housing recession is not over: Housing prices continue to fall," Humphries said.

And housing demand may not see a normal balance with new household formation and housing starts until 2013, said Doug Duncan, chief economist for secondary mortgage giant Fannie Mae.

The "overhang or shadow supply" of housing inventory has a lot to do with the drawn-out recovery for the housing market, he noted.

Home and rental unit vacancy rates are running about 2 million units above normal levels, Duncan said.

His forecast calls for home prices to continue to fall this year, perhaps 1 percent to 3 percent more, and hit bottom in the third quarter.

A Zillow home-value index, based on automated valuations for most U.S. homes, was negative through 2009 and reached toward equilibrium as a tax-credit deadline approached, Humprhies said.

"Depreciation rates are actually picking up again" now, he said, adding that Zillow also forecasts a bottom in home prices during the third quarter.

But don’t expect home prices to spike.

Humphries said he believes a more likely scenario is relatively flat prices, which means that home values will actually drop slightly, as they won’t keep pace with inflation.

"We think the market will be flat in nominal terms for three to five years. We are not going to hit bottom and see a V-shaped recovery."

The "tremendous amount of shadow inventory," which Humphries defined as properties that are in foreclosure and not yet on the market or are seriously delinquent and not yet in foreclosure, is definitely a contributor to the stalled real estate recovery, he said.

Negative equity, combined with high unemployment, also are key factors.

"We’re going to see more foreclosures spin out of that combination," he said.

Humphries also expects "sideline sellers" — who are waiting to put their homes on the market once they see some semblance of recovery — will continue to keep inventory high even as sales increase.

He noted that roughly twice as many homes were put on the market in April as were sold.

Foreclosure volume continues to increase and will likely peak later this year, Humphries said. "These rates will not recede very quickly. They’re going to stay high for awhile."

The federal tax credit programs offered to first-time and existing homebuyers do not appear to have had a major impact in driving sales, he also said.

He said it’s quite possible that low mortgage interest rates, low home prices and widely available FHA-backed loans would have been enough incentive for most buyers who accepted the tax credits. The programs "were just giving out money," he said.

Also, the tax credits appeared to just be "stealing demand" ahead in time, "and we’re going to see a payback in July and August."

Duncan said the tax credits "unquestionably … simply shifted demand in time period" for buyers, though he noted the policy rationale behind the tax credits.

The intent was to prevent house prices, which tend to overshoot on the upside, from overshooting on the downside as well, he said.

"Implementation of the tax credit and other policies is an implicit belief that the social cost of all of the interventions will be less than the cost of letting the market settle itself.

"There are a whole series of incremental policy changes that are designed to cushion that overshoot, and the question is whether that’s more or less costly than letting them adjust on their own," Duncan said.


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