Home prices fall again: Eight keys to the housing market future

Five years after home prices peaked in the US, the housing market remains a weak link in the economy – an important sector that's still struggling to find its postrecession footing. What will 2011 bring? It could be a pivotal year when home prices bottom out and a more stable environment begins to emerge. Here is a look at the key issues affecting home buyers and sellers as we approach the spring real estate market.

2. Where are home prices expected to be?

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    The Federal Building in Portland, Ore., which is one of eight major cities that is at their lowest point so far in the down cycle that began in 2006.
    US General Services Administration/AP
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Home prices are showing weakness, falling in the latest report of Standard & Poor's Case-Shiller indexes for major cities. Eight of the 20 cities are actually at their lowest point so far in the down cycle that began in 2006.

That doesn't necessarily mean prices will keep falling through the spring and beyond. Forecasts vary from steep losses in home values to very modest gains in 2011.

In December, the National Association of Realtors predicted that the national median sales price for previously owned homes will rise 0.6 percent in 2011 and 2.4 percent in 2012. That view, shared by some other private-sector economists, hinges on the notion that an improving jobs market will be boosting buyer demand and confidence.

Others are more pessimistic. Forecasters at the investment firm Morgan Stanley, for instance, while having a relatively positive outlook for the overall economy, see home prices falling by 10 percent this year before hitting bottom. Many analysts expect more modest declines, with Moody's Analytics calling for a 5 percent fall in home prices in 2011, and a 0.6 percent gain in 2012.

NAR chief economist Lawrence Yun says prices are very difficult to forecast, because they can easily overshoot on the way up or down. In his view, the "bubble" that existed in many markets has been removed, judging by current ratios of home prices to the cost of rental properties or to personal incomes.

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