More Housing Woes Ahead? Part 1

The Wall Street Journal reports on the spread of homes with negative equity. As of a year ago, estimates were that for 7% of mortgages that originated in 2004 through 2006 the amount owed was more than their homes were worth, but housing prices have fallen nearly 5% since then and are predicted to fall further.

Hagerty, James R. 2007. “Price Indexes Will Map Out Spread of ‘Negative Equity.” Wall Street Journal (22 December): p. A 2.


“Last March, First American CoreLogic, a housing- and mortgage-data supplier in Santa Ana, Calif., calculated that nearly 7% of 32 million U.S. households studied as of December 2006 owed more than their homes were worth, based on computer estimates of the property values. The homes studied had mortgages originated in 2004 through 2006, around the peak in the housing market. Since the end of 2006, U.S. home prices on average have fallen nearly 5%, said Mark Fleming, chief economist at the firm. That suggests that about 11% of the homes studied now would have negative equity. An additional 5% or so probably have equity of less than 5%. That doesn’t leave much cushion at a time when prices are still falling and most economists don’t expect the market to hit bottom for at least another year.”

“Economists at Merrill Lynch say home prices are likely to fall 10% in 2008 after slipping 5% this year. Mark Zandi, chief economist of Moody’s, a research firm in West Chester, Pa., recently forecast that on average U.S. house prices will decline about 13% by the second quarter of 2009 from a peak in the second quarter of 2006. Declines will be much larger in Florida, California, Arizona and Nevada, as well as in the metropolitan areas of Washington, D.C., and Detroit, he said.”

2 comments so far

  1. Rex on

    The credit crunch, subprime mortgage mess and the general state of the US economy make further declines in housing prices in 2008 inevitable.

    However, all real estate is local, and the effects will be different in different areas. Seattle and other areas in that neck of the woods will continue going strong. Manhattan will continue to boom as a result of natural limits to space, foreign investment, and the continued pull of the city; any fallout from Wall St. problems will be brief and won’t last more than a quarter. Miami and Detroit will continue to be disaster areas. And yes, on average, there may be a 10% decline in 2008. But we have a resilient economy, and things should turn around completely by mid-2009.

  2. mperelman on

    You may be correct. As Yogi Berra said, prediction is difficult, especially for the future.

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