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Mortgage Execs Predict Housing Slump into 2009

U.S. housing prices will continue to decline at least through the end of next year and may not begin creeping upward again until 2010, executives from the biggest mortgage financiers said Monday.

Officials with government-sponsored mortgage companies Fannie Mae and Freddie Mac and CEOs from two major mortgage banks told the Mortgage Bankers Association's annual convention that the continuing spike in foreclosures and a glut of unsold homes will prevent any quick price rebound.

"It's going to be a long time before we see it bottom out and recover," said David Lowman, chief executive of JPMorgan Chase's Global Mortgage unit. "There's too much inventory already in the marketplace."

Lowman and the three other participants in a round-table session before most of the convention's 4,000 participants differed slightly on the size of price declines still upcoming, but they agreed no price recovery is likely until at least 2009.

"I think this year we will see a 2 percent decline in national home prices, and we're projecting about a 4 percent decline next year," said Thomas Lund, an executive vice president at Fannie Mae .

Prices will likely flatten out in 2009, Lund said, before gradually rising.

Lowman said it might be 2010 before the price decline ends.

In certain coastal markets where speculative investing drove up prices rapidly early this decade, the price correction "could be quite severe," said Paul Bibb, CEO of National City Mortgage.

In Midwestern housing markets heavily hit by job losses, "the softness in those markets is going continue to depress home prices," Bibb said.

Patricia Cook, chief business officer of Freddie Mac , the No. 2 U.S. buyer and guarantor of home loans behind Fannie Mae, said investors in mortgage-backed securities likely will remain wary of committing more money to the cash-hungry market until they see a slowing in foreclosures. But that's unlikely in the short-term, since many at-risk homeowners will see their adjustable mortgages reset to higher interest rates in coming months and years.

The Federal Deposit Insurance Corp. estimates 2.5 million mortgages made to borrowers with weak credit will reset at sharply higher rates by the end of 2008.

"Until we see that, I think it's going to be hard for investors to come back in a meaningful way," Cook said. "We're probably in for a reasonable period of time that we'll see continued slowing" in the housing investment market.

'Crisis' Warrants Legislation

Cook and Lund expressed support for legislation that aims to infuse more cash into the market and give lenders more leeway to help at-risk homeowners refinance. Some lawmakers, mostly Democrats, have been pressing regulators to allow Freddie and Fannie to increase their holdings of mortgage debt by 10 percent above the current limits of $735 billion.

The federal regulator of Fannie and Freddie last month increased their investment caps by more than 2 percent annually but has declined to allow a larger increase. The White House has said it opposes raising the limits further until supervision of the two is tightened.

Higher investment caps could restore investor confidence that's now lacking, Lund said.

Lowman and Bibb agreed but suggested such expanded authority should be temporary.

"We are in crisis, so we support temporary measures," Lowman said.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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