Anyone thinking housing prices have reached a bottom had better do some recalculating. Despite Tuesday's Case Schiller report showing smaller declinesin January, housing prices may already be in another free fall.
Newly revised numbers are pointing to the decline.
The Federal Housing Finance Agency's (FHFA) adjusted figures show a housing price decline of 2 percent in December and 0.6 percent decline in January—reversing some regional price increases in 2009.
And more pricing dips are predicted.
"Case Schiller aside, we expect housing prices to fall another five percent in the coming months," says Paul Dales, US economist at Toronto based Capital Economics. "We've actually seen some declines in areas of the country. That's going to put a halt on any housing recovery."
Dales argues that the end of the $8,000 first time buyers tax credit on April 30th and the large amount of foreclosures in the pipeline—or on their way there—are reasons why prices will continue to fall.
"There's going to be less demand for housing when the tax credit ends," Dales says. "That leaves more home on the market for sale. And as to foreclosures, there will be more of them and that puts pressure on prices. We estimate about 2.5 million foreclosures through the rest of 2010."
If tax breaks ending and more foreclosures weren't bad enough, banks and other lenders have added to the problem for prices.
"Financing has dried up," says Alan Rosenbaum, president and CEO of Guardhill Financial, a residential mortgage firm in New York City. "And with the government more or less getting out of the lending business as it stops buying mortgage backed securities (MBS), there's less incentive for lenders to make loans. We could see a drop in home prices for sure."
With the Fed ending its asset backed purchasing program on March 31st, fears of higher interest rates have caused many to fear a slowdown in housing sales and putting even more pressure on prices.
Rates have been rising, ever so slowly. But they are still at historic lows and with the ending of the tax credit, some see the move as an incentive to buy regardless of price.
"If rates go up and with the tax credit gone, I think it would spur on housing," says Diane Saatchi, senior vice president with Saunders and Associates Realty in New York. "People will see rates rise and that will stimulate them to buy now rather than wait for rates to go higher."
But interest rates aren't really considered a problem—or a cure for housing prices right now.
"It's inventory," says Walter Malony, spokesman for the National Association of Realtors. "Prices are dependent on the inventory absorbed. I think we'll see about the same amount of foreclosures this year as we had last year. That's not good."
What differences Malony does see in the foreclosures this year are the cause. Foreclosures in 2009 were mainly dominated by people who couldn't refinance because their home was 'underwater' or they owed more on it than the mortgage was worth.
This year, Malony says, foreclosures are mainly due to job losses. "I keep saying that to save housing, the job picture has to improve," adds Malony.
The Obama administration and banks like Bank of America and Citigroup have offered plans to help stop the flow of foreclosures but experts don't put much stock in them.
"Banks aren't going to do much with these programs," says Guardhill Financial's Rosenbaum. "It's too labor intensive and they don't want to spend money on it. Big banks want to get out of the mortgage business."
How to stop the pricing decline has some calling for the government to remain in the housing business.
"I don't know what's going to take the place of the federal programs, specifically the Fed MBS one," says Mark Goldman, a real estate professor at San Diego State University. "I see a tightening of the loan market, as banks run out of money from the government. That makes it difficult to get loans. That's going to hurt housing."
Others say it's too early to tell what's going to happen. "We have to wait and see after the spring what's going on with housing and prices. We need several more months of data to figure out what will help," says NAR's Malony.
Still—one train of thought says let the housing market become truly 'free'.
"There is the idea of just letting housing prices fall on their own without any help on any level," says Capital Economics' Dales. "It's the 'lets just get it over and done with' feeling. There would be more short term pain and I mean pain. But it might be quicker to get prices back to normal. Prices are more fairly valued now. To tell you the truth, I'm not sure which way to go."