The U.S. housing market will experience a second recession, forcing banks to post additional loan-loss reserves, analyst Meredith Whitney said.
“Most investors are not baking in a double-dip in housing,” Whitney, founder of New York-based Meredith Whitney Advisory Group, said today in an interview on CNBC. “You’re going to see banks post additional reserves associated with this double-dip in housing, and that means weak performance going forward.”
U.S. home prices fell more than 30 percent from their peak in 2006 through the first quarter of 2009, prompting banks to take writedowns on mortgage loans. Housing starts have increased 24 percent since the low in April 2009 as mortgage rates remained near record lows and the U.S. government offered tax credits to homebuyers.
From the WSJ:
Housing analysts have grown gloomier about the outlook for U.S. home prices as sales slump, a new survey shows.
The monthly report by MacroMarkets LLC, due for release Wednesday, found that 56% of the 106 economists and other analysts surveyed expect home prices to decline this year. That is up from 40% a month ago.
Since April 30, new purchase contracts have plunged as buyers no longer have the incentive of a federal tax break, builders and real estate agents say. Lawrence Yun, chief economist for the Realtors, estimated that contracts signed in May were 10% to 15% below the weak level of a year earlier.
Ronald Peltier, chief executive officer of HomeServices of America Inc., which owns real estate brokers in 21 states, said new home-purchase contracts in May and June so far are down about 20% from a year earlier. The tax credit accelerated sales that otherwise would have occurred later in the year, Mr. Peltier said.
Terry Loebs, managing director of MacroMarkets, a developer of investment and hedging products based in Madison, N.J., said he believes housing analysts generally have grown more cautious because of the weak national employment data reported in early June and the sharp drop in sales and housing starts since April.
The analysts surveyed by MacroMarkets on average expect home prices, as measured by the S&P/Case-Shiller national index, to decline about 1.4% this year, then rise 1.3% in 2011 and 2.7% in 2012. For the five years ending Dec. 31, 2014, they see a rise of 10.5%. As of Dec. 31, the index was down about 28% from its peak level in mid-2006.
The U.S. real estate market threatens to undercut the Obama administration’s stimulus-driven economic recovery as home sales resume their record slide following the end of the federal homebuyer tax credit.
The end of the tax credit in April is putting a strain on a market still hurting from the worst collapse since the Great Depression. Foreclosures may reach 1.9 million this year after a record 2 million in 2009, according to Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. It would take 8.3 months to sell all available 3.89 million existing homes, the Realtors’ association said.
“We’re going to see a home-sales air pocket after the end of the tax-credit stimulus,” said Richard DeKaser, a former economist at the U.S. Bureau of Economic Analysis who founded Washington-based Woodley Park Research. “That means housing will be a drag on third-quarter economic growth.”
“If there is a sharp decline not only in housing sales but in housing prices, that could threaten a recovery,” said Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School in Philadelphia.
The median U.S. home price slid 29 percent to an almost eight-year low of $164,600 in February from a peak of $230,300 in July 2006, according to data from the Realtors group. Prices will drop 3.6 percent this year after falling 4.5 percent in 2009, the Washington-based Mortgage Bankers Association estimates.