Some Economists See Price Bottom this Summer
Existing single-family home sales fell by 13% in 2007 and new home sales plummeted 26.4%, but many economists expect sales will bottom out this summer while house prices continue to fall.
Fannie Mae economists expected single-family home sales will drop another 10% this year and Freddie Mac is forecasting an 11% decline.
"We expect housing starts and sales to stabilize in the middle of the year, with sustained gains beginning in 2009," according to Fannie's director of economics Molly Boesel.
Meanwhile, house prices declined 7.7% during the first 11 months of 2007, according to the Standard & Poor's/Case-Shiller housing price index, which covers 20 metropolitan statistical areas.
"There is now a board consensus that national house prices will fall by no less than 15% from their peak to their eventual trough," Mark Zandi, chief economist for Moody's Economy.com, told a congressional panel last week.
Economists at Merrill Lynch contend that the housing boom was driven mainly by a financing boom and the days of the easy mortgage are gone. They expect home prices will decline 15% in 2008 and another 10% in 2009.
"We have looked more closely at the housing fundamentals and we remain convinced that home prices must fall by 20%-30% from current levels to correct the supply and demand imbalances," Merrill Lynch economists say in a Jan. 22 commentary.
They also expect a major pullback in consumer spending. "We will likely see the worst consumer recession since the '80s."
Wachovia Corp. economists expect house prices to drop by 20%-30% in Florida, Nevada, California and other markets that saw a great deal of speculative purchases. "But corrections in most housing markets will be less severe." Wachovia's "Housing Outlook 2008" shows the S&P/Case-Shiller HPI falling by 9.6% this year and another 2% in 2009.
"We see the rising tide of foreclosures as more of a threat to house prices" than the overhang of unsold homes on the market, the Wachovia Outlook report says.
A Census Bureau report released last week shows 2.18 million vacant homes were for sale at the end of the fourth quarter.
Merrill Lynch and Wachovia economists said they expected significant rate cuts by the Federal Reserve when they published their housing forecasts. Meanwhile, the American Bankers Association's economic advisory committee gathered in Washington a few days before the Fed cut its key interest rate by 75 basis points on Jan. 22. The consensus of the nine economists on the committee is that there will be a "double-digit decline" in house prices this year. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/