Foreclosures and unemployment are the main threats to US property recovery in 2010 analysts claim

The US residential property market could be in for some serious trouble in 2010, but predictions of a second collapse are exaggerated, according to a new report.

Indeed, housing values could significantly recover in the spring of 2010 as low prices attract a mix of owner-occupiers and investors, says the report from real estate data and analytics company Radar Logic.

In some case heated bidding pushes up prices at foreclosure auctions and the supply of new and existing homes is declining, according to the report.

Radar Logic’s 25 MSA RPX Composite, which measures housing prices, dropped 0.7% in October, the smallest decline since 2005 for the same time period. It also remains 30% below its peak.The main threat though to a recovery property market is the shadow inventory of foreclosures.

According to the report, delinquencies have reached their highest peak in decades and the most bearish observers believe the inventory will flood the market once various government help programmes end, boosting supply and decreasing home prices.

However, Radar Logic analysts agree with a recent report from Realty Trac that the banks will release foreclosed properties slowly onto the market rather than dumping them.

‘Thanks to federal bailout money and a general improvement in their financial health, banks have been relieved of the urgent need to liquidate their assets. As a result, lenders and government entities like Fannie Mae and the FDIC have been able to curtail sales to raise prices and avoid recording losses on properties,’ the Radar Logic report says.

If the government and the banks can effectively solve the puzzle of mitigating foreclosures, Radar Logic says that property values could even go up in 2010.

A major potential cloud on the horizon is unemployment. Many believe the rates will peak in the next two or three quarters and then decline. Once that happens, according to the report, housing demand with strengthen even more.

‘While we are not out of the woods yet, our view is that housing is showing signs of stability, markets are showing signs of rational behaviour and everyone is starting to understand the fundamental problems that brought us here,’ the report concludes.


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