As the U.S. housing slump enters its third year, there is no sign of recovery anytime soon.Standard & Poor's 15-member Supercomposite Homebuilding Index tumbled 62 percent this year as of yesterday, the largest drop since the benchmark was started in 1995. The companies have lost about $35 billion of market value.
The outlook is bleak with new home sales projected to fall 13 percent in 2008, according to estimates from the National Association of Realtors in Chicago, even as interest rates drop. Losses at Fannie Mae and Freddie Mac, the two biggest U.S. providers of mortgage financing, may restrict the availability of home loans, and chief executive officers at D.R. Horton Inc. and Centex Corp. expect another tough year.
``This looks like it's going to be the deepest correction of any housing correction since World War II, and the question really is, `What's the duration, how long will it be?'''
Centex CEO Timothy Eller said at a JPMorgan Chase & Co. conference in Las Vegas on Nov. 27. Many homebuilding executives at the conference said they expect the slump to last through 2008.
A housing rebound is unlikely, as about 1 million adjustable loans made to subprime borrowers, those with weak or incomplete credit histories, are scheduled to reset at a higher rate in 2008, according to RealtyTrac. That may put many homeowners at risk of foreclosure and lower the value of neighboring houses. About 1.3 million subprime mortgages will be in foreclosure by September 2009, including actions already under way, according to estimates from New York- based analysts at Credit Suisse Group. ``There is just no quick fix, including further rate cuts, to stabilize the current weakness in the housing market,'' said CreditSights analysts Frank Lee and Sarah Rowin in a Nov. 23 report to clients.
New York, Ohio and at least six other states are investigating the mortgage industry, including whether appraisers, mortgage brokers and lenders may have inflated home values. Resolving the complaints ``could run into the millions or billions'' of dollars, CreditSights's Lee said.
``There will be some bankruptcies, some consolidations, some private equity plays,'' said Kenneth Rosen, chairman of the University of California's Fisher School of Real Estate and Urban Economics in Berkeley. ``It's going to be another hard year.''
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To make things worse, there is talk about who is going to pay for all the bad loans. One of the choices was "the tax payer".
