Report: Median Prices May Fall For 1-3 Years

Housing prices are projected to decline in more than 100 U.S. metropolitan areas, with the parts of the Northeast, California and the Florida housing market getting hit the hardest.

The forecast by Moody’s Economy.com, a private research firm, presents one of the starkest views yet of the housing slowdown that has been gathering force in recent months.

The firm projects that the median home prices for existing homes will decline in 2007 by 3.6 percent, which would be the first decline for an entire year in home prices since the Great Depression of the 1930s.

The forecast is included in a 195-page report, “Housing at the Tipping Point,” which The AP obtained before its general release today.

The report projected 133 of the 379 metro areas in the U.S. would suffer price declines in home prices. Those areas with declining prices account for nearly one-half of the value of the nation’s stock of single-family homes.

The declines represent quite a contrast from the past five years, when low Florida mortgage rates pushed sales to five consecutive annual records and prices in the hottest sales areas skyrocketed.

But this year, the red-hot housing sector has cooled significantly. Some analysts are worried the slowdown could become so severe that it could drag the entire country into a recession, much as the bursting of the stock market bubble in 2000 led to the 2001 slump.

THE WORST DECLINE

The report said the biggest percentage price depreciation will take place in Danville, Ill., where prices have already fallen by 18.7 percent since their peak in the second quarter of 2005. That setback occurred because of layoffs in autos and other industries, which have hampered the local economy.

The second biggest decline is projected to occur in the Fort Myers, Fla., area, a fall of 18.6 percent from the peak in the final three months of last year to a low point for prices projected for Q2 of 2007. The Southwest Florida housing market has long been considered one of the nation’s most overvalued.

The 133 areas with prices are concentrated in the states of California and Florida and the Northeast corridor from southern Maine to just south of Washington, D.C., as well as boom areas of Nevada and Arizona and some depressed sections of the Midwest such as Detroit.

LOW POINTS UPCOMING

Of the areas with falling prices and home sales, 72 were forecast to hit their low point by the end of this year with the rest seeing a trough for prices in 2007, 2008 or even as late as 2009. But even in areas that have already hit a low point for prices, a rebound is not expected to occur quickly.

“Prices are going to go down and stay down for a while. It will take a couple of years to work off the excesses of the last decade,” said Mark Zandi, chief economist at Economy.com and the author of the report.

A CORRECTION

The report described the current environment as a “correction” and not a “‘crash,” but it cautioned that downside risks could make the slowdown more serious.

“We believe the housing decline will weigh on the economic expansion but will not break it,” Zandi said.

The slowdown in housing occurred partly as a result of a two-year campaign by the Federal Reserve to push interest rates higher (which in turn caused Florida home mortgage rates to creep upward, though they have fallen off a bit in the last three months) as a way of slowing down the economy enough to keep inflation under control.