Even The NAR Expects Further Housing Price Drops

Residential real estate's biggest cheerleader, the National Association of Realtors, is predicting a fall in housing prices.

The National Association of Realtors said Wednesday it expects its measure of home prices to fall this year for the first time since the group began keeping track nearly 40 years ago.

In its latest monthly forecast, the real estate group said it expects a 0.7 percent decline in the median price of an existing home sold in 2007. A month ago it had been projecting a 1.2 percent increase. Half of all homes sell for more than the median and half for less.

A 0.7% decline isn't much. Let's hope that's all it is. I'm betting not, though.

Neither is Ken Heebner, who is predicting as much as a 20% decline in some markets.

Kenneth Heebner, manager of the top-performing real-estate fund over the past decade, said U.S. home prices may plunge as much as 20 percent because of rising defaults on riskier mortgages.

Subprime loans, made to borrowers with a history of missed payments or untested credit, and ``Alt-A'' loans, which require little or no documentation, account for about $2.5 trillion of the $10 trillion in outstanding mortgages, according to Moody's Economy.com. As much as 40 percent of these loans may default, flooding the real estate market, Heebner said.

``It will be the biggest housing-price decline since the Great Depression,'' Heebner, 66, said today in an interview in Boston. Prices may fall by a fifth in some markets, he said.

Prices declined by even more in some cities around 1990/1991, and by some measures, housing is even more extended today.

But don't tell that to the average American. Only one in seven believes the value of their house will decline. In a recent LA Times/Bloomberg poll, 32% of Americans think their house will rise in price in the next six months.

Nearly a third of those polled predicted home values in their neighborhood would increase in the next six months. Only 16% anticipated a decrease. The rest said values would hold steady.

Call it foolish faith or bold optimism, the forecast is at odds with the downward trend of home prices.

The National Assn. of Realtors recently reported that prices fell 2.7% in the last three months of 2006. Many economists expect real estate to have a rough ride this year, partly because of rising mortgage loan defaults. ...

Perhaps more interesting was that 60% of Americans believe the economy will soon enter into a recession.

Real estate aside, however, the poll of 1,373 adults reflected widespread unease about the U.S. economy.

Most experts, including Federal Reserve Chairman Ben S. Bernanke, say there's little chance of a recession.

Americans have a much bleaker outlook. Sixty percent of the poll respondents said a recession was somewhat or very likely within the next year.

Problems are spreading to the Alt-A market

Since the subprime mortgage market began deteriorating late last year, investors and analysts have kept a close watch on Alt-A loans, worrying that problems in higher-grade loans would prove to be a greater threat to the housing market and the economy.

Alt-A loans are made to borrowers with credit ratings that fall between prime and subprime, or to homeowners who have prime credit but are seeking a somewhat riskier loan.

Such loans made up about 10 percent of all mortgages outstanding at the end of 2006 and made up about 18 percent of home loans written last year, according to Moody’s Economy.com.

Together, subprime and Alt-A loans account for about 21 percent of loans outstanding and 39 percent of mortgages made in 2006. ...

On the lighter side, a 102 year old man in England took out 25-year mortgage.

A pensioner aged 102 has been granted a 25-year mortgage despite the fact he would have to live until 127 to pay the loan back.

The property investor from East Sussex has taken out an interest-only £200,000 mortgage and hopes to meet the £958 monthly repayments with income from rent as he joins a growing army of retired people hoping to cash in on buy-to-let schemes.

Good for him. I like optimists!