Foreclosure Halt Could Boost Home Prices: Economist

A halt to foreclosures could be a boost to home prices in the near term, Carl Riccadonna, US senior economist at Deutsche Bank, told CNBC Thursday.

“The moratorium will help the situation,” said Riccadonna, who issued a note to investors on housing. But he cautioned that long-term a moratorium could result in a “tidal wave of inventory” that would force prices down again.

“Housing is in such a fragile state right now, so that foreclosure and distressed sales account for about a third of the volume of transactions. If we shut that off, we could actually see the volume of transactions fall to a new low—the lowest since the '90-'91 recession,” he added.

“While that will help us work through the existing inventory that’s out there, once those foreclosure properties come back on the market, once the situation has been resolved, that could lead to a tidal wave of inventory that could cause prices to re-weaken.”

Officials in 50 states and Washington DC launched a joint investigation Wednesday into allegations that mortgage companies mishandled documents and broke laws in foreclosing on hundreds of thousands of homeowners. Employees at four large lenders have admitted in depositions that they signed off on foreclosure documents they hadn't read.