So, where the heck is this bottom? The question is stealing sleep from weary homeowners who have watched home prices plummet 21 percent from their 2006 peaks, evaporating more than $2 trillion in wealth last year. Meanwhile, government officials, who witnessed the U.S. housing market’s collapse tip the global financial system into chaos, are scratching their heads for answers. Yet the numbers keep heading south. How much more pain can this market dish out?
Trouble is, despite the already precipitous declines, home prices aren’t expected to bounce back anytime soon. Actually, a slew of unsettling developments—the ongoing recession, tighter credit, and the massive glut of unsold inventory, just to name a few—suggest values have farther to drop. “I think it will be probably mid-2010 before we see the bottom in home prices,” says Mission Residential’s chief economist, Richard Moody, who expects values to fall 10 to 15 percent more before stabilizing.
Could the market spring back to life before then? Perhaps. Cheap mortgage rates, which hit record lows in January and are expected to remain attractive, are the best reason to hold out hope for an earlier-than-expected rebound. “Low interest rates are a very powerful tonic for housing markets,” says Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California Berkeley. But as banks jack up their lending standards in the face of higher delinquencies, many would-be homeowners won’t qualify for the most attractive rates, blunting the impact of this incentive.
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