Housing Prices Will Keep Dropping...

...and the Mad Biologist told you so. A while back, I looked at median incomes and median housing prices and concluded that housing prices had to drop twenty to forty percent from their highs. I also thought that, given the ARM recasts due in 2010 and that too many in the U.S. are already over their heads in debt, it would be much closer to forty percent than twenty. Well, by way of Calculated Risk, we find that Fitch Ratings concurs:

The projected losses also reflect an assumption that from the first quarter of 2009, home prices will fall an additional 12.5% nationally and 36% in California, with home prices not exhibiting stability until the second half of 2010. To date, national home prices have declined by 27%. Fitch Rating's revised peak-to-trough expectation is for prices to decline by 36% from the peak price achieved in mid-2006. The additional 9% decline represents a 12.5% decline from today's levels.

And why does Fitch conclude this? A crappy economy combined with people freaking out about losing tens of thousand of dollars due to plunging housing prices:

"The home price declines to date have resulted in negative equity for approximately 50% of the remaining performing borrowers in the 2005-2007 vintages. In addition to continued home price deterioration, unemployment has risen significantly since the third quarter of last year, particularly in California where the unemployment rate has jumped from 7.8% to 11%."

This whole housing phenomenon isn't that hard: housing prices grew much faster than incomes (except for the upper few percentiles). Something had to give.

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Hopefully they'll keep dropping. About half off would be a start, then maybe houses will actually be affordable to most people without having to either rob a bank or murder relatives for the life insurance.

By Captain Obvious (not verified) on 16 Jun 2009 #permalink