By the end of the housing downturn, nearly 62 per cent of the nation's 381 metropolitan areas will have experienced double digit per cent declines in house prices peak-to-trough, says the report by chief economist Mark Zandi and his team, which includes Celia Chen, senior director of housing economics.
According to the report, the declines will exceed 20 per cent in about 100 metro areas and will be scheduled to a discussion on a Webcast this Thursday. An advance copy was given exclusively to Reuters.
Despite the gloomy data, the report, by an independent subsidiary of Moody's Corp, paints an improving picture of the housing market, which is in the midst of its worst downturn since the Great Depression and is both the source and a major casualty of the world credit crisis. An improvement could portend a turnaround for the world's largest economy and help stanch losses at US banks, hit hard by soured mortgage securities. The report noted that "Despite the darkening national economic outlook and the weak conditions in the housing market, some positive signs give hope that a bottom in the housing market is coming into view." The report also mentioned that "More than three years since the market began correcting, inventories are flattening, prices are coming back down to earth, and sales are approaching stability."
The outlook, however, assumes stronger action by US policymakers. It says that even with further government intervention, the recession will keep the housing market from fully recovering until the end of this year. With this help, sales are probably at bottom, stabilized by foreclosure sales, while construction will hit bottom in the first half of this year, although the pace of housing starts will remain very depressed until 2011. From the peak to the trough, total single-family home sales will have declined by 40 per cent and housing starts by 70 per cent.
Zandi's analysis of the impact of the US economic stimulus package has been cited by some of the Obama administration's top advisers. The Moody's Economy.com report, titled ‘Housing in Crisis: When Will Metro Markets Recover?’, says home prices in the United States will hit their nadir in the fourth quarter of 2009, with the National Standard & Poor's/Case-Shiller Home Price Index expected to show a 36.2 per cent peak-to-trough decline. The peak was reached in the first quarter of 2006.
House prices have fallen in about 70 per cent of all metro areas over the past several years. Although prices in most metro areas declined modestly during this period, price depreciation from peak exceeded 5 per cent in 116 metro areas and exceeded 20 per cent in about 50 metro areas. Those metro areas with the most exposure to subprime and investor lending, which consequently experienced the greatest run-up in prices during the boom, are suffering the greatest declines on the downside of the housing cycle.
Punta Gorda, Florida, is one of the hardest hit US markets. Its house price declines are expected to reach a bottom in the second quarter of 2010, with a peak-to-trough decline forecast at 65.4 per cent. The peak was reached in the first quarter of 2006.
House price declines in Stockton, California, are expected to reach a nadir in the fourth quarter of 2009, with a peak-to-trough drop forecast at 67.1 per cent. The peak was reached in the first quarter of 2006.
Moody's Economy.com, based in West Chester, Pennsylvania, provides economic research and consulting services to businesses, governments and other institutions.