Wednesday, August 6, 2008

Freddie CEO: Home Prices Could Fall Another 20%

U.S. house prices will fall by as much as 20 percent nationally and the current mortgage finance crisis is about half-way through, according to Richard Syron, the chairman and CEO of Freddie Mac.

"Previously, we said house prices would fall at least 15 percent nationally, peak to trough. Today's challenging economic environment suggests that the housing market is far from stabilizing," Syron, told investors in a conference call held to discuss the company's earnings."As a result, we now believe that national home prices will fall 18 to 20 percent peak to trough. ... The long and short of it is that we now think that we are half-way through the overall peak-to-trough decline."

These "half-way through" forecasts are being derived by forecasters looking at the potential number of future problems, including payment option mortgages. They then look at when specific problems should hit and the size of the problems. This is a pretty good basic forecasting method, with one BIG caveat: Ben Bernanke. If the Fed continues to slow money growth, like it has over the last three months, things could be much worse, on the other hand, if the Fed spikes money growth, the housing market problems could clear up much faster than expected. Bernanke is the key.

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