Housing Prices To Free Fall in 2008

In keeping with our promise not to water down reality in what we cover for you at this site, we bring you news of a Merrill Lynch report released recently that said "The worse housing financial crisis in decades is only going to get worse."

The investment bank forecasted a 15 percent drop in housing prices in 2008 and a further 10 percent drop in 2009, with even more depreciation likely in 2010.

By contrast however, the National Association of Realtors (NAR) expects housing prices to remain flat in 2008.  NAR did cut its home price estimate for the current quarter, however, to a 5.3 percent year-over-year decline, which represents the steepest drop in that price measure on record.  But NAR sees an uptick in home prices in the last two quarters of 2008.

The current housing crisis and the depreciation in home prices have pummeled the economy, with businesses and consumers cutting back on spending, raising the specter of a recession.

But for those who think that the worst is over, Merrill Lynch said that housing prices still remain comparatively high. The brokerage believes that home prices are still far above historical norms when compared to other measures such as rent or GDP.

Merrill Lynch believes that housing starts will most likely slide another 30 percent by the end of 2008 - a historic low.

We'd love to hear your comments and thoughts on the current market.  And what about the Fed rate cuts?  Do you think it will help stimulate the economy and the housing industry?  Leave us your comment below.  Your email address will not be published here for your privacy.

Lenders Beginning to Make Deals

With so many houses in the United States facing foreclosure, mortgage lenders are starting to offer favorable deals for distressed borrowers they would not have agreed to just six months ago.  This is not altruism, but a case of lenders trying to avoid being stuck owning hundreds of thousands, or even millions, of homes, according to economists, academics and other experts.

According to research by the non-profit organization the Center for Responsible Lending, there are 7.2 million outstanding subprime mortgages in the United States.  Subprime mortgages are those offered to people with weak credit histories at higher interest rates than those offered to prime borrowers — those with good credit.

The center estimates that more than 14 percent of all subprime mortgages are already in default and that 2.2 million families or individuals with a subprime mortgage made between 1998 and 2006 will lose their homes through foreclosure.  The center further estimates homeowners will lose $164 billion in equity as a result of the crisis.

In the third quarter of 2007, mortgage companies had modified the terms on 54,000 loans and had worked out new repayment plans for another 183,000, according to the Mortgage Bankers Association.

The association did not give comparative figures for the third quarter of 2006.  An official said the loan modification programs had likely expanded further during the fourth quarter of 2007.

For lenders, there are financial incentives to keep people in their homes, even if it means cutting interest rates and making less money.

When a home ends up in foreclosure, the lender becomes the owner of a property that quickly loses value, with no revenue coming in.  They are also liable to pay property taxes.

So before you lose your home to foreclosure, talk to your lender.  They may just be willing to work with you today in ways they wouldn't even think about a year ago.

2008 Predictions

So you think you know what's going to happen to interest rates, housing, the economy and the stock market this year?  Compare your guesses to those of the experts in this video (runs 1:44).

So what are your predictions?  We'd love to hear what YOU THINK.  Leave your thoughts below by clicking the comment link.  Your email address will NOT be published here for your privacy.

Recession Near or Already Here?

More than three in four Americans believe the U.S. economy is already in a recession, or will be sometime in 2008.  That's according to a comprehensive poll commissioned recently by Fortune Magazine.

Only 19 percent of 1,000 Americans surveyed believe the nation will avoid a recession, while 57 percent believe there will be a downturn this year.  Another 19 percent believe the nation is already in a recession.

What's worse for the economic outlook, just about half of those surveyed say they've cut back their spending compared to last year.

These results indicate a far gloomier outlook than economists anticipated.

How worried are you?  Post a comment below.  We'd love to hear your take on the economy.  Don't worry, your contact information will never be posted on this blog.

Super-Secret Budgeting Tips

Among the most common New Years resolutions is to sticking to a budget.  If that sounds familiar, you'll appreciate this story:

Money reporter Stacy Johnson provides some expert guidance when it comes to tracking the family finances. (Video Runs 1:33)

If you have a comment or question about this video, please use the comment link below.  Your email address will never be published here for your privacy protection.