Zandi: Distressed Sales a Problem Through Next Year

An increase in distressed sales later this year will drag home prices down before the market hits bottom in the first half of 2011, according to Moody's Economy.com chief economist Mark Zandi. The West Chester, Pa., forecasting firm expects prices will fall 5% from the start of this year into 2011, based on the Standard & Poor's/Case-Shiller house price index. A key statistic for housing prices is the proportion of distressed sales to nondistressed sales. If foreclosure and short sales are increasing, "house prices will fall," Zandi told the National Association of Home Builders at its construction forecast conference on Tuesday. "We will see the number of problem loans going into foreclosure or short sales increase later this year," he said. He noted that 4.3 million first mortgages are 90 days or more past due and likely will default. The Treasury Department this week reported that 122,500 borrowers in trial loan modifications dropped out of the HAMP program in April. Economy.com forecasters expect 1.89 million foreclosure and short sales this year, down slightly from 1.97 million in 2009.