FICRY

Homeless and White in NYC

(Bloomberg) — The slump in the U.S. housing market that caused the median value of homes to decline 24 percent since 2006 may bottom next month without any prospect of a rebound for another year, according to estimates from chief economists at Fannie Mae and Freddie Mac, the Mortgage Bankers Association and national realtors and homebuilder groups. Existing home sales probably won’t reach pre-boom levels until the third quarter of 2010 and housing starts won’t surpass 1 million until 2011, a barrier last broken six decades ago, the economists said. “There are very few V-shaped recoveries in the history of real estate, and this one is likely to be even slower because of the size of the bubble,” said Robert Shiller, the Yale University professor. The rebound will be so anemic that 2009 building starts will total about 496,000 homes, the lowest since the end of World War II in 1945, according to the economists’ forecasts. Foreclosures on pay option adjustable-rate mortgages and a backlog of bank-owned properties will slow any revival and keep housing from playing its traditional role of boosting economic recovery. Residential construction and home sales led the way out of the previous seven recessions, with housing starts improving an average seven months and resales gaining strength about four months before the economy picked up. The world’s largest economy probably will grow 1.9 percent next year, according to the average estimate of 56 analysts surveyed by Bloomberg. After each of the last seven contractions, it expanded more than 3 percent on average in the first year of recovery. “History suggests that new-home sales bottom long before unemployment peaks, and perception of the economy starts to improve long before we see actual economic improvement,” Lawler said. “This time around we don’t know if that will hold true.” About $40 billion of mortgages at U.S. banks have payments 90 days or more overdue, more than triple the $11.5 billion of homes the banks already hold, according to data from the Federal Deposit Insurance Corp. in Washington. Another $78.8 billion are 30 to 89 days overdue, the FDIC said. More than 1.6 million mortgages have been modified since 2007, according to Hope Now, a coalition of mortgage companies in Washington. Between 41 percent and 46 percent of those loans may relapse, according to Office of Thrift Supervision data. There were more than 2 million Alt-A loans in the U.S. in March, 28 percent of them held by investors who don’t live in the properties they own, data compiled by the Federal Reserve show. That includes interest-only home loans and pay-option adjustable rate mortgages. Property owners with option ARM mortgages can see payments double at a time when home values are tumbling, said Rick Sharga of RealtyTrac Inc., the Irvine, California-based seller of foreclosure data. “We’re about to have a whole wave of option ARMs,” Sharga said. “These will probably default at rates even higher than subprime mortgages because when they reset almost every one of them will be upside down.” Even if prices stop falling, owners in California, Florida, Nevada and Arizona — states hardest hit by the housing slump — probably won’t feel any relief, said David Berson, chief economist at PMI Group Inc. in Walnut Creek, California, the fourth-largest insurer of U.S. home loans. Prices there may stagnate for at least another two years, Berson said. The national median home price will fall until at least 2011, according to Fannie Mae.

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