Bottom in Sight? Yes, Says One Economist

U.S. house prices overall will hit bottom by year’s end, after suffering a 36 percent drop from their 2006 peak values, a study co-authored by Moody’s Economy.com chief economist Mark Zandi said Monday morning. “Notwithstanding the intensifying economic gloom, the bottom of the housing downturn is within sight for the nation,” said Mark Zandi, chief economist at the economic research hub. “Presuming we see strong action by policymakers to help support the economy and the housing market, prices will begin to recover by the end of this year.” The forecast marks the first somewhat positive outlook for the U.S. housing market by a major independent economic team this year — somewhat, because home prices still have further to fall. A recent HousingWire Magazine cover story took a look at what major economists predict for U.S. housing in 2009, and the outlook was pretty grim across most we spoke with (Zandi declined to be interviewed, as his study was not released). Subscribe here. Nonetheless, Zandi and co-authors Celia Chen, Cristian deRitis and Andres Carbacho-Burgos said that they see flattening inventories, prices coming back down to earth, and sales that are approaching stability in many markets. House prices nationwide have already fallen by about 25 percent since their 2006 peak, using the Fiserv Case-Shiller home price indices as a benchmark. But despite some early signs of improving sales and optimism that new policy measures will help to put a floor under the housing market, the study does predict that 2009 will be a year to forget, with home prices falling another 11 percent on average before stabilizing. “Policymakers have not yet been able to break the downward spiral that has developed among the sinking housing market, job losses, frozen credit markets, and rising foreclosures,” Zandi said. The study predicts that by the time the market correction is complete, it will have been widespread and severe, with 62 percent of the nation’s 381 metro areas seeing double-digit, peak-to-trough declines in house prices. Declines will exceed 20 percent in about 100 metro areas, as measured by the Case-Shiller, the study estimates. The hardest-hit regions, such as Southeast Florida, California’s Central Valley, and the Riverside, CA metro area, are expected to decline by upward of 50 percent, according to the study. In only about 42 markets, mostly smaller cities in the South, house prices will fall by less than 1 percent. Even if the recession ends late this year, as expected, the subsequent recovery looks to be lackluster. Real GDP is not expected to return to its pre-recession peak until late 2010, and the nation will not approach a full-employment jobless rate of 5 percent before President Obama’s term nears its conclusion in 2012, according to the study’s authors. Write to Paul Jackson at paul.jackson@housingwire.com.