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Economists adjust U.S. housing price predictions downward: VIDEO

March 26, 2012 02:15PM

A worse than expected Case-Shiller report and the mortgage settlement have pushed expectations for home prices down, Stan Humphries, chief economist of Zillow, said on Yahoo! Breakout (see video above).

Despite headwinds of an economic recovery taking hold in the U.S., economists expect housing prices to fall further than initially estimated, according to a survey by Zillow.com.

Whereas at the end of the fourth quarter Zillow.com’s survey predicted a 0.2 percent drop in nationwide home prices this year, the survey released last week revised that prediction to a 0.7 percent fall, with the benefit of updated Case-Shiller data and the terms of the mortgage settlement. The settlement in particular will weaken prices as more foreclosed properties hit the market.

Even as mortgage rates begin to climb above record lows, consumers won’t rush to capitalize on rates and buy houses, Humphries said.

“What’s happening in the market is not a function of pricing right now because pricing is really quite compelling on the purchase side,” Humphries said. “It really has to do with a crisis of confidence.”

As Zillow.com has previously predicted, once housing prices stop falling they won’t immediately bounce back. “Generally what we’re expecting in Zillow.com’s forecast is not a V-shaped recovery at all,” Humphries said. Instead, the company expects two to four years of “below-trend growth,” or appreciation of less than the 3.5 percent annualized long-term average.

By 2016, Humphries said, real estate should once again become a “non-depreciating asset,” and return to the long-term growth trend. [Yahoo!]