Fitch Forecasts U.S. House Prices to Drop Another 12.5% Before Hitting Bottom

NEW YORK, NY, (Business Wire)--U.S. home prices will fall an additional 12.5% from 2008's year end values before exhibiting more stability in late 2010, according to Fitch Ratings.

This forecast reflects a reversion to early 2002's prices. Currently, prices are hovering around levels seen in mid 2003.

Fitch revised its projection from earlier expectations of a 10% further decline as of second quarter-2008 (2Q'08).

The revision to Fitch's October 2008 forecast is due to the extremely weak economic factors in the fourth quarter of 2008, said Group Managing Director and U.S. RMBS group head Huxley Somerville.

"Very weak employment, limited re-financing opportunities and turbulent financial markets have extended into the first months of 2009, while government initiated programs have yet to yield any positive benefits,' said Somerville.

To date, national home prices have declined by 27%. Fitch's revised peak-to-trough expectation is for prices to decline by 36% from the peak price achieved in mid-2006.

The additional 9% decline represents a 12.5% decline from today's levels.

The 36% peak-to-trough decline is up from the forecast 30% decline reported in October 2008.

Fitch believes that most of the correction will be incurred in the next two years, with prices exhibiting more stability from late 2010.

Fitch's forecast analysis assumes 1.5% inflation rate for 2009 and 2010 and 3% for the following three years.

Within the next few weeks, Fitch will release a state-by-state forecast of home price declines.
Fitch's forecast is primarily based on its expectation that home prices will return closer to the long-term historical mean, which has been the pattern of prior home price cycles.

Given the volatile economic conditions, Fitch will continue to review its forecasts to ensure they are still accurate and provide updates every six months.

Fitch's revised forecast will be incorporated in all new RMBS analysis, as well as the surveillance of existing Fitch-rated RMBS transactions.

Contacts :
Fitch Ratings, Huxley Somerville, 212-908-0381

Kei Ishidoya, 212-908-0238 (New York)

Media Relations: Sandro Scenga, 212-908-0278 (New York)sandro.scenga@fitchratings.com