Economist Sees 10%-20% Home Price Drop

Meanwhile, a senior economist at Deutsche Bank has told an investors' meeting in New York that there is a housing bubble in the U.S. market and says he expects home prices to decline 10%-20%.Speaking at a meeting for Pfandbrief investors sponsored by the Association of German Mortgage Banks, Cary Leahy noted, however, that "we have never had declines in housing prices across the economy." And even though "it's going to end in tears," and "people are going to get hurt," their financial pain will be moderated by a good labor market, he said. Mr. Leahy said the U.S. economy is in good shape right now, with an improving labor market, a decline in core inflation, and a growing gross domestic product. The biggest difference between the U.S. economy and those of other economies is "consumer leverage," he said. Mr. Leahy said he expects the Federal Reserve Board to tighten monetary policy, and he sees a 300-basis-point hike in interest rates between June and the end of next year. "The big question in credit markets is 'Can they do 50 bps in August after 25 bps in June?' he said. "... The Fed does not want to cause a stink in an election year."