Home Prices in U.S. to Decline Through 2010, Insurer PMI Says

[Purveyor]

Source: Bloomberg

By Dan Levy

April 1 (Bloomberg) -- Home prices will fall in more than half of the largest U.S. cities through 2010 as the recession slashes jobs and reduces buying power, according to PMI Mortgage Insurance Co.

PMI, the second largest U.S. mortgage insurer, said 21 of the 50 biggest U.S. metropolitan areas have more than a 75 percent chance of lower home prices in two years. Six others have more than a 50 percent chance, the Walnut Creek, California-based insurer said in a report today.

“The impacts from subprime and Alt-A lending are not yet done,” David Berson, chief economist at PMI, said in an interview.

The economy lost 2.6 million jobs in the four months through February, and unemployment may rise as high as 9.4 percent by the end of the year, according to a Bloomberg News survey of economists. The housing market is also contending with a record number of foreclosed homes being offered at a discount.

Job losses have spread from areas battered by the housing recession and declining automobile sales to states such as North Carolina and South Carolina where non-auto manufacturers and service companies are cutting staff.

Since the recession began in December 2007, the economy has shed 4.4 million jobs.

Read more: http://www.bloomberg.com/apps/news?pid=20601103&sid=a_i8BlV5UrnM&refer=news

[PSPS]

1. The recession isn't to blame

Housing prices were far too high anyway. When the median household income is about $50K/year, there's no way a median price for a house could stand at $450K or more. That's eight times the median income when it should be, at most, three. It was the NINJA, alt-A no-doc "liar's loans" that flooded the market with nefariously-borrowed money, and that made prices rise so high.

So, recession or not, housing prices need to go down to where people can afford them.

[percussivemadness]

2. absolutely right..the old standard on 3 + 1 (3 times main income and 1 times secondary income)

has always proved to be right and manageable. 2.5 times joint is also ok, once you start getting into 3 or 4 times joint income, it causes a bubble and gets people into financial problems.

The UK went through this in 1988 - 1995, leading up to 1988 banks changed their lending criteria to as much as 4 times joint to 100% of loan value. When people started "walking away" it caused property prices to crash in a way very similar to what the USA is experiencing now. For people who want to know when we will be at the bottom of this current fiasco, it will be when the median house price equates to the old 3+1 or 2.5 times joint income formula.

We are looking at the moment, its nearly there price wise, probably another 10-15% drop is required.

[imdjh]

3. Why when I was a child, actually 20 years ago, it was 2.5X gross

The SF Bay area and NYC broke the rules, and probably started the different standard becoming more accepted. Until fairly recently, your rent payment was supposed to be equal to one week's salary. Due to tax considerations, the 28/36 applied to mortgage payments. At some point, landlords and lenders decided that certain places were so desirable that up to 50% of income could go to rent/mortgage payments. That would probably be the point at which the association between the value of a property and the affordability of the property separated.

The used to value apartment buildings based on the income method. The value of the building was a function of the combined rents. When condos and coops started converting even two unit rental properties into owner occupied properties, once again the relationship between value and cost was severed.