ZZ Housing prices to free fall in 2008 - Merrill

ball2003

Housing prices to free fall in 2008 - Merrill

According to a Merrill Lynch report, home prices will drop 15 percent this year, and declines will continue in 2009.

http://money.cnn.com/2008/01/23/real_estate/merrill_forecast/index.htm?postversion=2008012313

NEW YORK (CNNMoney.com) -- The worst housing financial crisis in
decades is only going to get worse, a Merrill Lynch report said
Wednesday.

The investment bank forecasted a 15 percent drop in
housing prices in 2008 and a further 10 percent drop in 2009, with even
more depreciation likely in 2010.

By contrast, the National Association of Realtors (NAR) expects
housing prices to remain flat in 2008. NAR did cut its home price
estimate for the current quarter, however, to a 5.3 percent
year-over-year decline, which represents the steepest drop in that
price measure on record. But NAR sees an uptick in home prices in the
last two quarters of 2008.

"Merrill Lynch's figures are way too
pessimistic, and they are unprecedented," Lawrence Yun, the National
Association of Realtors chief economist told CNNMoney.com. "There is so
much variation in local housing markets, and we see stable price
conditions for 2008."

The current housing crisis and the
depreciation in home prices have pummeled the economy, with businesses
and consumers cutting back on spending, raising the specter of a
recession. "Lower sales and higher inventory for sales are lowering the
velocity of transactions," said Fritz Siebel, Director of US Property
Derivatives for Tradition Financial Services. "That cannot be a sign of
good health for the economy."

But for those who think that the
worst is over, Merrill Lynch said that housing prices still remain
comparatively high. The brokerage believes that home prices are still
far above historical norms when compared to other measures such as rent
or GDP. "By our calculations, it will take about a 20 to 30 percent
decline in home prices to correct this imbalance," said the report.

Merrill Lynch believes that housing starts will most likely slide another 30 percent by the end of 2008 - a historic low.

The
report says that the inventory situation only continues to worsen, as
homebuilders are now looking at more than a nine months' supply. "The
current supply/demand environment does not favor a swift recovery in
the housing market, in our view," according to the report.

Yun
agrees that the reduction in housing starts will not bode well for the
economy, especially in the homebuilding industry, but he believes that
the reduction will soothe the housing market by slowing the glut in
inventory. "The reduction in housing starts is not stabilizing the
economy, but it will stabilize the market," said Yun. 

http://money.cnn.com/2008/01/23/real_estate/merrill_forecast/index.htm?postversion=2008012313