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US house prices to slide 30% before crisis is over: Moody’s

(NEW YORK) Housing markets from Punta Gorda, Florida, to Stockton, California, will crash and suffer price drops of more than 30 per cent before the housing crisis is over, a report from Moody’s Economy.com said yesterday.

On a national level, the housing market recession will continue through early 2009, said the report, coauthored by Mark Zandi, chief economist, and Celia Chen, director of housing economics.

The report paints a worsening picture of the hard-hit housing sector, which is in the midst of its worst downturn since World War II.

While activity will stabilise in 2009, it will not be until 2010 before a measurable improvement in sales, construction and pricing will emerge, the report said.

House prices are forecast to fall 13 per cent from their peak through early 2009. After accounting for incentives home sellers are offering buyers, effective declines peak-to-trough will total well over 15 per cent, the report said.

Punta Gorda, Florida, and Stockton, California, are the hardest hit markets in the US, with price declines from peak-to-trough forecast at 35.3 per cent and 31.6 per cent, respectively.

These markets have been hard hit due to several reasons, namely the exiting of investors from the areas, a fair amount of subprime mortgage loans causing an increase in foreclosures and overbuilding by home builders, Mr Zandi said.

Home sales, however, should hit a bottom in early 2008, which will mark a 40 per cent drop from peak-totrough.

‘The housing market’s most fundamental problem is it is awash in unsold inventory,’ the report said.

In addition, the housing downturn will take a large toll on the rest of the economy. During the height of the boom in 2004-05, housing contributed nearly a percentage point to annual real gross domestic product, or GDP, growth.

In the current downturn, housing will subtract more than one percentage point from US economic growth this year, and a percentage point and a half in 2008, with the effect on growth seen most pronounced next spring and early summer. ‘The intensifying housing recession is expected to weigh on the broader economy, but not break it,’ the report said.

The Moody’s Economy.com’s report, titled ‘Aftershock: Housing in the Wake of the Mortgage Meltdown,’ said that when house prices hit their nadir, some 80 of the nation’s 381 metropolitan areas will experience a double-digit peak-to-trough price decline.

Price declines, however, will vary in degree throughout the nation, with more than a 15 per cent peak-totrough expected around Washington and Detroit.

Significant declines are also expected throughout most of Arizona, California, Florida and Nevada.

During the housing market’s heyday, speculative activity was rampant in these areas, causing prices to surge much higher than other regions.

The Northeast corridor, and markets such as Boise, Idaho, along with Denver and Salt Lake City, will experience between 5 per cent and 15 per cent declines. In the rest of the industrial Midwest and parts of the Mountain and Pacific Northwest, prices will fall more modestly.

While some point to rising default rates in the subprime mortgage market, which caters to borrowers with poor credit histories, as the root cause of the problems plaguing the housing market, Moody’s Economy.com said an unwieldy supply of unsold homes is the prime factor.

 

Source: Reuters (Business Times 7 Dec 07)

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