Analysts Predict Home Prices To Decline Until 2012

According to analysts at Morgan Stanley, total US home sales for 2010 will likely underperform 2008 levels and US home prices will continue to decline in 2011. The …

According to analysts at Morgan Stanley, total US home sales for 2010 will likely underperform 2008 levels and US home prices will continue to decline in 2011. The analysts emphasized that without continued government support of Fannie Mae and Freddie Mac, as well as policy changes to address the substantial shadow inventory of homes, US home values could continue to decline through 2012. See the following article from HousingWire for more on this.

Morgan Stanley analysts expect housing prices to continue to slide, reaching new depths in 2012, as home sales have yet to bottom and appear to be lower than two years ago.

Analysts said owner-occupied housing hasn’t improved despite some private-sector job gains, increased household formations, and mortgage rates at generational lows. As lending standards tighten, mortgage originations backed by the Federal Housing Administration is also slowing and further hindering homeownership, according to Morgan Stanley.

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“There is a very good chance that both total home sales in 2010, as well as the average of home sales in 2009 and 2010, will be lower than in 2008,” the analysts said in the investment giant’s recent Housing Market Insights report.

Morgan Stanley expects 2011 home prices to fall 5% to 10% from this year with four years of flat prices after that, although “the risk of slight additional downside in prices, and extension of the trough to 2012, has increased.”

The analysts said continued government support of lending by Freddie Mac, Fannie Mae, and the FHA remains critical, but if no federal policy changes are enacted, the affects “could range from marginally to significant negative.”

Steep declines in housing activity and prices are possible upon considerable cuts to FHA lending, and the analysts don’t “see any realistic credit providers” to replace the government agency.

Reducing the current shadow inventory of 8 million homes, which are valued at an aggregate $1.68 trillion, is of utmost priority. This can be met by addressing negative equity and expanding short-sale programs to preserve mortgage quality and minimize losses, according to the analysts.

This article has been republished from HousingWire. You can also view this article at
HousingWire, a mortgage and real estate news site.

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