The US mortgage market should withstand even a double digit drop in home values, with recovery postponed until at least 2012. Experts expect the volume of distressed properties to push prices down another 5 – 10 percent. See the following article from HousingWire for more on this.
Mark Zandi, chief economist at Moody’s Analytics, told HousingWire that he expects home prices to be depressed during 2011 and into 2012. He is anticipating a 5% to 10% decline in prices until mid-2011. “We won’t see modest growth until 2012,” he said.
Zandi also believes that demand and supply for homes are bottoming out, though an increase in distressed sales will continue to drag values.
He mentioned back in October, during a webinar hosted by HousingWire, that he felt the bottom was getting closer but until employment improves in the United States, improvements in the housing industry will not feel measurably better.
Hedge fund founder Greg Lippmann also believes a 10% drop is likely, but said the mortgage market will do fine with such a drop, according to a Bloomberg report. Lippmann is a founder of hedge fund LibreMax Capital and a former Deutsche Bank AG trader who gained fame for his bets against subprime-mortgage securities.
While buyers of home-loan securities are anticipating the decline, investors in other markets aren’t pricing in the potential drop, Lippmann said this week at the Hedge Funds New York Conference hosted by Bloomberg Link. As a result, mortgage debt that’s soared in price this year is still cheaper relative to high-yield, high-risk corporate bonds, he said.
“If housing prices go down 10%, the mortgage market is going to do fine because that’s what is priced in,” Lippmann said. “Broader markets aren’t pricing in housing down another 10%.”
Lippmann focused his hedge fund’s buying on subprime-mortgage debt in October, its first month, according to an investor letter. He favors older bonds from 2002 and 2003, whose underlying borrowers still have equity in their homes, Lippmann said, according to the Bloomberg report.
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