The meltdown of the U.S. housing market is not
over yet, and home prices will soon start trekking downward again as a
flood of foreclosures looms, a well-known economist said Wednesday.
Mark
Zandi, chief economist at at Moody's Economy.com in West Chester,
Pennsylvania, said in an interview with Reuters home prices will resume
their decline by early next year as foreclosure sales pick up again.
"The housing crash is not over," he said.
The
U.S. housing market has suffered the worst downturn since the Great
Depression, and its impact has rippled through the recession-hit
economy as well as the rest of the world. A setback for the hard-hit
housing market could portend problems for the U.S. economy.
Home
prices, as measured by the Standard & Poor's/Case-Shiller U.S.
National Home Price Index, will trough in the third quarter of 2010
after declining 38 percent, Zandi said.
The U.S. housing market has suffered the worst
downturn since the Great Depression, and its impact has rippled through
the recession-hit economy as well as the rest of the world. A setback
for the hard-hit housing market could portend problems for the U.S.
economy.
Home
prices, as measured by the Standard & Poor's/Case-Shiller U.S.
National Home Price Index, will trough in the third quarter of 2010
after declining 38 percent, Zandi said.
The
index peaked in the second quarter of 2006 and hit a trough in the
first quarter of 2009, a drop of about 32 percent. Home prices in many
regions have been rising.
That is because foreclosure sales fell over
the summer and fall as mortgage servicers have tried to put stressed
homeowners into the Home Affordable Modification Program and other
modification plans, he said.
"This lull in foreclosures sales has resulted in the price gains in the past few months," he said.
"Foreclosure
sales will increase, and home prices will resume their decline by early
2010 as mortgage servicers figure out who will not qualify for a
modification," he said.
Zandi
said 7.5 million foreclosure sales will have taken place between 2006
and 2011. The majority of these sales, however, have not emerged yet,
with 4.8 million foreclosure sales expected between 2009 and 2011.
Attractive
rates and high affordability have been positives for the U.S. housing
market, which has been showing signs of stabilization.
Sales
have surged in recent months as buyers scrambled to take advantage of
the government's first-time home buyer tax credit, which was originally
set to end Nov. 30.
Last month the Omaha administration extended
the $8,000 first-time home buyer tax credit, added a $6,500 credit for
home owners buying a new residence, and increased income limits.
Eligible borrowers must sign contracts by April 30 and close loans by
June 30.
Zandi
said another significant obstacle to a housing market recovery is the
number of mortgages that are "underwater," where borrowers owe more for
the loan than the residence is worth.
This negative equity disqualifies many homeowners from refinancing and prevents some from selling their homes.
Borrowers
in negative equity are also more prone to defaults and foreclosures.
Zandi said about 25 percent of single-family homes with mortgages have
negative equity.
"With
so many homeowners so deeply underwater and unemployment very high and
on the rise, the foreclosure crisis will continue putting more pressure
on home prices," he said.
The
U.S. Labor Department said the unemployment rate reached a 26-1/2-year
high of 10.2 percent in October. November's unemployment rate in
November will be announced Friday.
"Our
house price outlook is dependent on two other key assumptions,
including a more stable job market by early 2010 and that interest
rates on fixed-rate mortgages remain well below 6 percent throughout
the year," he said.
The unemployment rate will peak at 10.7 percent in the third quarter of 2010, Zandi forecast.
Source:
cnbc.com