Housing Meltdown ...... Why home prices could drop 25% more

[RedEarth]

Housing Meltdown
Why home prices could drop 25% more on average before the market finally hits bottom

As Washington policymakers struggle to keep the U.S. out of recession, the swirling confusion over the housing market is making their job a lot tougher. Will American consumers keep shopping or be forced to pull back? Will banks lend freely or be hamstrung by mortgage defaults? What are the best policy options right now? Those and other important questions simply can't be answered without a good idea of whether home prices will rise, flatten out, or keep dropping.

Some experts have begun to suggest that a bottom is in sight. Pali Research analyst Stephen East wrote in a research note to his firm's clients on Jan. 25 that "the sun is not shining very brightly, but at least the worst of the storm has likely passed." With optimism budding, Standard & Poor's beaten-down index of homebuilder stocks soared 49% from Jan. 15 through Jan. 29.

But it's considerably more likely that the storm is still gathering force. On Jan. 30 the government said annual economic growth slowed to just 0.6% in the fourth quarter as home construction plunged at a 24% annual rate. The Standard & Poor's/Case-Shiller 20-city home price index fell 7.7% in November from the year before, the biggest decline since the index was created in 2000.

And that could be just the start. Brace yourself: Home prices could sink an additional 25% over the next two or three years, returning values to their 2000 levels in inflation-adjusted terms. That's even with the Federal Reserve's half-percentage-point rate cut on Jan. 30

While a 25% decline is unprecedented in modern times, some economists are beginning to talk about it. "We now see potential for another 25% to 30% downside over the next two years," says David A. Rosenberg, North American economist for Merrill Lynch (MER), who until recently had expected a much smaller slide.

http://www.businessweek.com/magazine/content/08_06/b4070040767516.htm?chan=top+news_top+news+index_best+of+bw

[MannyGoldstein]

1. In 1970, A House Cost One Average Year's Salary

Now, it's something like 4 average years' salary. If we return to 1970 levels, we'll be dropping a hell of a lot more.

[rzemanfl]

2. A lot of people are going to be upside down on their homes if

prices drop another 25%.

[Skittles]

3. they'll drop because they're completely overinflated

I mean, really

[ixion]

4. yep, really

in a big, big way. I still see houses listed for way more than they're worth, and until that corrects, they're going to go down, down, down.

[cyclezealot]

5. The average credit card debt is like 9 K dollars.

how can they spend us out of this recession. The tax rebate will just barely cover one month's credit card debt payment.