Top forecasters attending a housing conference Wednesday in Washington predicted further declines in US home prices, which are already down 20 percent from their early 2006 peak. VOA's Barry Wood reports that defaults on home mortgage loans in August 2007 triggered what has become a global credit squeeze.
Forecaster Mark Zandi of Moody's Economy.com says US home prices are unlikely to recover until mid 2009. The boom and subsequent bust in US housing has been the most severe in 60 years. Assisted by low interest rates, home prices in many parts of the country soared and nearly doubled from 2000 to 2005. Since then, Zandi says they've been in steady decline.
"So prices have now been falling for 2.5 years," said Mark Zandi. "And prices are back to what they were in early 2004. So anyone who bought a home in the intervening period and didn't put much down in the process is now underwater [owing more than the home is worth]."
Zandi says the nationalization in September of two government-sponsored housing agencies (Fannie Mae and Freddie Mac) and the collapse of Lehman Brothers investment bank, turned a housing crash into a financial panic. Unprecedented losses in the banking sector have undermined the financial system, which the Treasury and central bank have been desperately seeking to contain.
Addressing the same homebuilders conference, Michael Moran of Daiwa Securities, expressed optimism that the crisis is gradually easing. He does not foresee the bad loan problem expanding from home mortgages to car loans and credit cards.
"What I'm thinking is going to happen is that we'll see the normal cyclical upward default rates on credit cards and auto loans that we typically do during a recession," said Michael Moran. "And not have an additional downward pull from lax lending practices [as we did in home loans]".
Other forecasters addressing the conference agreed that the US economy is in a recession that is likely to last until late 2009. Zandi says people are so frightened with the suddenness and expected severity of the downturn that they are turning much more cautious with their spending.
"It is so unprecedented, so significant in scale that it is searing our collective psyches," he said. "It is reaching down to generations that are much younger."
Zandi predicts that the worst of the downturn is still ahead. He expects the jobless rate, now at just over six percent to reach eight percent by the end of 2009. He says the pace of job losses, 100,000 per month so far this year, will increase to 150,000 per month over the remainder of this year and into 2009. Home foreclosures, he says, will peak in 2009, up from three million this year.