Are Home Prices Headed For A Triple Dip?

Fiserv, a financial analytics company, caused a stir this week when they announced that they were predicting a “triple dip” in home values for 2012. In other words, they expect another dramatic fall in home values across the country due to increased foreclosures to the tune of 3.6% by the middle of summer 2012.

That would create the third dip since 2006, after the first bottom reached in 2009. If you remember, a swarm of residential foreclosures sent prices plunging 31% below their 2006-level peak. The second dip occurred in the winter of 2010. At its lowest point, it represented a price fall of 33% from peak. If this third dip occurs as predicted, it would represent at least 35% lower prices from 2006.

That’s a pretty big number – and those interested in foreclosure investing should take note.

To put that into perspective, take a home that cost $200,000 in 2006. That represents a fairly decent “average” price that would buy you a nice home in most markets. Right now, that same home would cost $138,000. By next June, the same home would cost just $130,000.

Why the triple dip?

Foreclosures are the main drivers behind this move. The foreclosure process is up and running again in most markets, and even though banks haven’t completely opened the throttle yet, they will soon – and that means markets will be saturated with foreclosed homes for sale in just about every region.

Foreclosure auctions will be packed with homes and investors trying to find the perfect deal, which will be far easier to find than it has been. Additionally, financing for these homes will likely be easier than it will be for traditional homes simply because the amount being financed likely will be significantly lower than the already-depressed home values for unsold non- foreclosures.

Of course, not every market in the country will result in a triple dip. In some areas, believe it or not, prices are staying the same or even rising. High-end homes are still strong, and a few choice metro areas are set up for nice rebounds. Fiserv is predicting that roughly 100 out of 385 metro markets monitored will post price increases of at least 5% from the midpoint of 2012 through 2013, and a third of those markets will break the 10% barrier.

Naturally, though, if you want to make the most of the situation and fully leverage your capital, it helps to look to areas that will be hit even worse than the national average. That represents the greatest disparity between full recovery price (the price you can expect when the market levels out) and current available prices – i.e. your profit margin. Las Vegas always seems to find its way on this list and will probably tack on another 15-16% loss before it’s all over. Miami is set up for a similar 13% decline. Many California metro areas will post greater-than-average declines as well.

This prediction is just one forecast, but the reasoning is sound. More foreclosures will enter the fray and current credit is stretched paper-thin in most areas. But, as they say in any other investment vehicle, buy low and sell high. This upcoming year gives you plenty of opportunities for the first part of that money-making equation.