Moody's Sees Potential Housing Market 'Crash'

The downturn in the housing market is in "full swing," according to Moody's Economy.com, with nearly 20 metropolitan areas set to "crash" over the next 24 months.

In one of the most pessimistic forecasts by a major forecasting firm, Moody's expects some markets will suffer double-digit price declines. If Moody's is correct, that means equity on homes purchased in the past few years could be wiped out or go negative.

Economy.com's outlook report, "Housing at the Tipping Point," predicts housing prices in Cape Coral, Fla., will take the biggest hit - off 18.6% from its peak in the fourth quarter of 2005, until it bottoms out in the second quarter of next year.

The biggest price declines will occur along the southwest coast of Florida, metro areas in Arizona and Nevada, nine California markets, throughout the Washington, D.C., area, and in and around Detroit.

The "odds are high that national house prices will decline in 2007, the first decline in nominal house prices since the Great Depression," the company says in a new report.

Most of the price declines will occur in the coastal states, and nearly 100 metro areas will experience a "measurable" decline in housing prices, the company predicts. However, Economy.com chief economist Mark Zandi noted that although some markets will crash, the national market will not, unless the U.S. economy buckles. "Even during the worst of the housing downturn, expected early next year, the expansion should remain intact," the report says.

Last week, Federal Reserve Board chairman Ben Bernanke acknowledged the housing market is in a "substantial correction" and it could shave one percentage point off gross domestic product in the second half of this year. Mr. Bernanke's remarks are the first admission by the Fed that the decline in home sales and construction is worst than the Fed expected.

Fed policy makers continue to monitor the housing downturn to see if it adversely impacts consumer spending and other parts of the economy.

In an interview last week, Friedman Billings Ramsey analyst Michael Youngblood said he expects year-over-year price declines in 30 markets, most of which are in the Midwest or what he calls the Rust Belt and Farm Belt.

But Mr. Youngblood believes Arizona, California, Florida and Nevada - all of which have been hot markets until recently - will hold up. He described the California housing market as "still very good" but cautioned that "bubbles could burst" in certain areas there. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com