The U.S. housing market correction is seventy-five percent complete, according to a report released earlier this week by Fitch Ratings; analysts at the firm projected that home prices would fall another 10 percent from current levels nationally, with some areas seeing more severe remaining price corrections. To date, national home prices have declined by 22 percent from their peak in 2006; Fitch’s peak-to-trough expectation is for prices to decline by 30 percent from the peak price achieved in 2006 (the additional 8 percent decline represents a 10 percent decline from today’s levels). The rating agency thinks that most of this correction will be incurred in the next several quarters, with prices exhibiting more stability beginning in 2010. Most of the price declines expected have occurred. Fitch’s analysis found that the 29 percent rise in prices realized between 2004 and 2006, representing one of the largest price growth periods ever recorded, has since been reversed. With prices returning to early 2004 levels, Fitch believes that most of the additional 10 percent decline, which will bring prices back to levels seen in 2003, will occur over the next eighteen months — the agency said it then expects declines thereafter to moderate. While the worst of the correction appears to be over, managing director and U.S. RMBS group head Huxley Somerville said that many factors can impact the timing and amount of further declines. “Should economic conditions become much worse than expected, home prices would decline more than Fitch’s projection and price stabilization would be delayed,” he said. “Higher mortgage rates and tighter underwriting also will continue to put downward pressure on prices.” “Alternatively, government programs such as the U.S. Treasury’s Trouble Asset Relief Program and expanded mandates for Fannie Mae, Freddie Mac and Federal Housing Administration to increase loan purchases and originations may facilitate liquidity in the housing markets, which could have a positive impact on prices,” said senior director Suzanne Mistretta. Fitch’s forecast is primarily based on its expectation that home prices will return closer to the long-term historical mean, which has been the pattern of prior home price cycles; the analysis is derived using the Case-Shiller home price indices and assumes a 3 percent inflation rate. For more information, visit http://www.fitchratings.com.

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