The “new normal” for house prices is expected to be minimal appreciation at best, or gradual depreciation at worst, over the next year or two. That’s the inference one can draw from the latest predictions by leading industry watchers that mostly point to 2013 as the year when home prices begin to show some steadier upward movement.

For example, Fannie Mae sees existing home prices declining in 2012 by 1.3% to a national median of $163,200, and then rising 1.1% to $165,000 in 2013. Fannie sees the median new home price taking a 1.3% dip to $218,900 next year, and then rising by 1% to $221,300 in 2013.

Moody’s Analytics sees pretty much the same pattern: median existing home sales falling 1.1% to $161,900 next year and increasing by 2.1% to $165,300 in 2013, while the median new-home price inches up by 0.8% next year, and by 5.4% in 2013 to hit $239,300.

Guessing how home prices will bounce that far out is hazardous, however, especially since current data aren’t clarifying the picture much. As Builder reported last week, two leading house price indices—S&P/Case-Shiller’s and the Federal Housing Finance Agency’s—can’t even agree on whether home prices were actually down in the third quarter of the year. CoreLogic chimed in on Tuesday morning with its estimate that home prices fell for the third consecutive month in October and were down by 3.9% compared to October 2010.

Mark Fleming, CoreLogic's chief economist, said in a prepared statement that "while many housing statistics are basically moving sideways, prices continue to correct for a supply and demand imbalance. Looking forward, our forecasts indicate flat growth through 2013." 

And now another voice is being heard from. In a letter to investors dated December 2, Goldman Sachs Global ESC Research states that while homes may not appear expensive in most markets, the Case-Shiller 10-city Index would fall by another 2.5% from mid-2011 to mid-2012, “followed by a stabilization in the year thereafter.” The Case-Shiller 20-city Index is projected to fall another 3.5% during this period.

Goldman predicates its forecast on a revised house-price model based on quarterly data from 147 metro areas dating back to 1975, versus only 20 metro markets since 1997 for its old model.

A second variable in its methodology is its two-stage error correction approach. The first step, Goldman explains, establishes each market’s price “equilibrium” using such factors as population, income, mortgage financing, and construction costs. For example, its historical data indicate that a 1% increase in a market’s income is associated with a 0.6% increase in house prices; and that population growth influences houses prices, but only in metros that have an “inelastic land supply.”

Its second step uses historical data to capture the impact of short-term determinants, such as house price “momentum” (on average, Goldman contends, a 1% price decline over four quarters is followed by a 0.4% decline in the subsequent year); excess inventory (a one percentage point increase in a market’s homeowner vacancy rate lowers home prices by 0.8% in the next year, and by 1.8% after two years); and the mortgage market (a one percentage point increase in delinquency rates lowers home prices by 0.69% during the subsequent year).

Goldman sees house prices “close to equilibrium” and thinks the bottom is in sight. But there will also be wide variations in market recoveries. Depressed housing markets such as Detroit and Cleveland are expected to enjoy price appreciation over the next two years. Conversely in markets where house prices still reflect significant overvaluation, further price declines are likely. For example, Portland, Ore., where home prices fell by 10% in 2011, is still 10% above its equilibrium level, based on Goldman’s historical analysis, and therefore could see its house prices decline by another 8% over the next two years.

In New York, where house prices remain 26% above their equilibrium point, Goldman foresees a correction “despite growing income in the area.” And in Atlanta, excess inventory will continue to erode house prices.

John Caulfield is senior editor for Builder magazine

Learn more about markets featured in this article: Atlanta, GA, Portland, OR.