Economist: Housing Market May Bottom in 2009

U.S. home prices will reach bottom by the end of the year, concluding a slide that will have cut values 36 percent, Moody’s Economy.com said.

“Notwithstanding the intensifying economic gloom, the bottom of the housing downturn is within sight,” chief economist Mark Zandi said in a statement today. “Presuming we see strong action by policymakers to help support the economy and the housing market, prices will begin to recover by the end of this year.”

Demand for new and existing homes began to fall in 2005, marking the end of a five-year U.S. housing boom fueled in part by easy credit for subprime borrowers. Existing home prices tumbled from an average high of $230,200 in July 2006 to $175,400 in December, according to data from the Chicago-based National Association of Realtors.

U.S. home prices will fall another 11 percent on average before stabilizing, according to Moody’s Economy.com. The Case- Shiller home price index will fall 36 percent from its 2006 peak to the bottom this year, Zandi’s study said.

About 62 percent of U.S. metropolitan areas surveyed will record double-digit declines in home prices by the end of the slump, according to today’s report. Prices will fall more than 50 percent in former boom areas such as southeast Florida and parts of California, including Riverside.

Florida Falls

The biggest home-price decline is forecast for the Naples, Florida, area, where the report estimates prices will tumble 70.1 percent from the top before hitting bottom in the fourth quarter of 2010. Naples is followed by the California areas of Merced and Salinas. Merced prices are forecast to fall 69.6 percent from the peak and Salinas 67.9 percent.

Zandi said at a Credit Suisse homebuilder conference in September 2007 that the housing slump would last through 2008. In an interview on Bloomberg Television on March 3, 2008, he said home prices had fallen about 10 percent nationwide from the peak and he expected prices to fall another 10 percent through early 2009.

In a separate forecast today, housing starts are estimated to plunge 47 percent to 483,000 in 2009, according to Metrostudy, a Houston-based housing market research and consulting company. An estimated 904,300 housing units were started in 2008, according to the U.S. Census Bureau.

“Builders are still trying to sell off the inventory they have,” Brad Hunter, chief economist at Metrostudy, said in an interview. “Consumers are scared to purchase a refrigerator much less the house to put it in.”

The Obama administration and Congress are trying to stem the housing slide at the root of the U.S. recession. President Barack Obama is trying to get a $780 billion economic stimulus bill passed that may help ease lending and bolster home buying.

The U.S. Senate is working to boost house purchases among six-figure-income households by replacing a $7,500 tax credit for first-time homebuyers earning less than $150,000 with a $15,000 break for all income groups. Adding that to the economic stimulus package, senators effectively are encouraging purchases by higher-income households with a reduced risk of default.