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Report: Some Home Prices Could Fall 30 Percent

Prices likely to sink through at least 2009

By Mark Huffman
ConsumerAffairs.com

December 7, 2007

At its most dire, the report, co-authored by Mark Zandi, chief economist, and Celia Chen, director of housing economics, suggests housing markets will crash in some of the hardest-hit markets. For example, the authors say prices in Punta Gorda, Florida and Stockton, California could plunge 30 percent from their peaks.

Nationwide, the price of the average home is forecast to fall 13 percent from their 2005 peaks through early 2009. The report says further incentives may be required to sell some property, pushing the average decline to as low as 15 percent.

The report also goes into detail about the reasons for the housing market woes, and not all are tied to the subprime mortgage fiasco, which is only now beginning to be addressed by the U.S. government.

The report says the sudden withdrawal of investors in some areas and over-building by some home builders have also contributed to the glut of homes on the market, which in turn has led to slower sales and more foreclosures, creating a vicious cycle.

Effect on the economy

It remains to be seen how the declining housing market impacts the overall economy.

At the height of the real estate boom, housing was a huge contributor to the economy, accounting for nearly a full point of Gross Domestic Product. The authors predict the current recession in the housing market will remove more than a full point from this year’s GDP and perhaps a point and a half in 2008.

Moody’s areas of greatest predicted price declines closely match regions of the country where foreclosure rates have so far been the greatest. The most significant loss of home value is predicted for California, Florida, Arizona, and Nevada – states where speculators were particularly active.

While falling home prices may be painful for homeowners, many economists say the price declines may be the only real cure for the housing market. Even the Moody’s report sees the large and increasing inventory of unsold homes as the root cause of the problem. Once prices dip enough to attract new homebuyers, the market will rebound.

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