National Housing Bust: Four More Quarters

Moody's Economy.com says look for a housing market turnaround in early 2009 -- provided market conditions cooperate.

by Broderick Perkins
© 2008 DeadlineNews.Com

Deadline Newsroom - If you've been wondering when the housing market will turn around, Moody's Economy.com says it has the answer -- early 2009 -- provided market conditions cooperate.

The report, "Aftershock: Housing in the Wake of the Mortgage Meltdown," forecasts the beginning of the end to housing market woes early next year, but only with the alignment of significant housing market conditions.

Given the current state of those conditions, a planetary alignment may also be necessary.

Economy.com's report says to generate a 2009 turnaround, home builders must further curtail housing starts, sellers must shave more off asking prices and lenders will have to loosen their purse strings, among other cooperating market conditions.

To put the housing market on the road to recovery, new homes constructed must fall to 1 million this year, down from the estimated 1.2 million last year.

The report, which incorporates the respected Case-Shiller Home Price Index, a measure of home price appreciation, says the national median home price will have to tumble 12 percent from peak levels. Prices have already fallen 5 percent from their high point, according to "Aftershock" data.

Along with a smaller inventory of homes and lower home prices, a market turnaround will also require more loan modifications to help stop foreclosures from flooding the already oversupplied market.

Creditors must also ease their grip on financing so more consumers can buy homes.

"In this scenario, the housing market finds a bottom by early 2009," the report says.

Unfortunately, the downturn could be prolonged if prices slide too much, too many mortgages fail and money stays hard.

"The ramifications of this for the economy, and thus housing, would be overwhelming. Behind this worry is the financial system's substantial exposure to hundreds of billions in mortgage losses that are set to come," the "Aftershock" report warns.

Another risk is home owners suffering equity losses that amount to too much "wealth effect" erosion.

"As consumers turn more cautious in response to their eroding wealth, the economic expansion will surely waver, but if it falters significantly it will ignite a further devolution of the already reeling housing market," the report further warns.

Without a cooperating convergence of key factors, analysts could begin to use the "C" word -- as in "crash," says the report.

Making no mention of a supposed "media effect," postulated by real estate leaders who say media coverage has exacerbated the housing market slowdown, "Aftershock" sees some light in what it considers "promising" federal policy making efforts.

The report says the Bush Administration, federal legislators and federal regulators are fully engaged in heading off the recessionary impact of the hard-pressed mortgage market.

The Federal Reserve has lowered interest rates, Congress recently passed the "Mortgage Forgiveness Debt Relief Act of 2007," effective January 1, 2008, and lawmakers have several more major pieces of legislation in the pipeline to assist homeowner.

"The most significant upside risk to the housing outlook is that policymakers appear fully engaged in stanching the financial turmoil and ensuring that the economy avoids recession," the report concludes.

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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