Fitch: Home Prices to Drop 10 Percent More
Monday, November 03, 2008
Fitch Ratings said yesterday it expects another 10 percent drop in home prices before we begin to see stabilization in 2010, with the rate of decline slowing in the coming months.
To date, national home prices have declined by 22 percent, the ratings agency said in a press statement. Fitch's peak-to-trough expectation is for prices to decline by 30 percent from the peak price achieved in 2006. The additional 8 percent decline represents a 10 percent decline from today's levels, the company explained. Fitch said it thinks most of this correction will be incurred in the next several quarters, with prices exhibiting more stability in 2010.
Fitch's analysis shows that the 29 percent rise in prices realized between 2004 and 2006, representing one of the largest price growth periods ever recorded, has been reversed. With prices now returning to early 2004 levels, Fitch said it believes we will see an additional 10 percent decline, bringing prices back to levels seen in 2003, occurring over the next eighteen months. Declines thereafter are expected to moderate.
Based on Fitch's projections, the worst of the correction appears to be over. Still, Huxley Somerville, group managing director and head of the U.S. RMBS group at Fitch, said that many factors can impact the timing and amount of further declines. “Should economic conditions become much worse than expected, home prices would decline more than Fitch's projection and price stabilization would be delayed,” said Somerville. “Higher mortgage rates and tighter underwriting also will continue to put downward pressure on prices.”
A Fitch senior director, Suzanne Mistretta, added, “Alternatively, government programs such as the U.S. Treasury's Trouble Asset Relief Program (TARP) and expanded mandates for Fannie Mae, Freddie Mac, and Federal Housing Administration (FHA) to increase loan purchases and originations may facilitate liquidity in the housing markets, which could have a positive impact on prices.”
Fitch's forecast is primarily based on its expectation that home prices will return closer to the long-term historical mean, which has been the pattern of prior home price cycles, the company explained. Fitch's forecast analysis is derived using the Standard & Poor's/Case-Shiller home price indices and assumes a 3 percent inflation rate. For additional information, visit the Fitch Ratings Web site.
To date, national home prices have declined by 22 percent, the ratings agency said in a press statement. Fitch's peak-to-trough expectation is for prices to decline by 30 percent from the peak price achieved in 2006. The additional 8 percent decline represents a 10 percent decline from today's levels, the company explained. Fitch said it thinks most of this correction will be incurred in the next several quarters, with prices exhibiting more stability in 2010.
Fitch's analysis shows that the 29 percent rise in prices realized between 2004 and 2006, representing one of the largest price growth periods ever recorded, has been reversed. With prices now returning to early 2004 levels, Fitch said it believes we will see an additional 10 percent decline, bringing prices back to levels seen in 2003, occurring over the next eighteen months. Declines thereafter are expected to moderate.
Based on Fitch's projections, the worst of the correction appears to be over. Still, Huxley Somerville, group managing director and head of the U.S. RMBS group at Fitch, said that many factors can impact the timing and amount of further declines. “Should economic conditions become much worse than expected, home prices would decline more than Fitch's projection and price stabilization would be delayed,” said Somerville. “Higher mortgage rates and tighter underwriting also will continue to put downward pressure on prices.”
A Fitch senior director, Suzanne Mistretta, added, “Alternatively, government programs such as the U.S. Treasury's Trouble Asset Relief Program (TARP) and expanded mandates for Fannie Mae, Freddie Mac, and Federal Housing Administration (FHA) to increase loan purchases and originations may facilitate liquidity in the housing markets, which could have a positive impact on prices.”
Fitch's forecast is primarily based on its expectation that home prices will return closer to the long-term historical mean, which has been the pattern of prior home price cycles, the company explained. Fitch's forecast analysis is derived using the Standard & Poor's/Case-Shiller home price indices and assumes a 3 percent inflation rate. For additional information, visit the Fitch Ratings Web site.
