http://money.cnn.com/2008/01/23/real_estate/merrill_forecast/index.htm?postversion=2008012313

According to a Merrill Lynch report, home prices will drop 15 percent this year, and declines will continue in 2009.


NEW YORK (CNNMoney.com) -- The worst housing financial crisis in decades is only going to get worse, a Merrill Lynch report said Wednesday.

The investment bank forecast a 15 percent drop in housing prices in 2008 and a further 10 percent drop in 2009, with even more depreciation likely in 2010.

By contrast, the National Association of Realtors (NAR) expects housing prices to remain flat in 2008. NAR did cut its home price estimate for the current quarter, however, to a 5.3 percent year-over-year decline, which represents the steepest drop in that price measure on record. But NAR sees an uptick in home prices in the last two quarters of 2008.

The current housing crisis and the depreciation in housing prices have pummeled the economy, with businesses and consumers cutting back on spending raising the specter of a recession.

But for those who think that the worst is over, Merrill Lynch said that housing prices still remain comparatively high. The brokerage believes that home prices are still far above historical norms when compared to other measures such as rent or GDP. By our calculations, it will take about a 20 to 30 percent decline in home prices to correct this imbalance, said the report.

Merrill Lynch believes that housing starts will most likely slide another 30 percent from current levels, to 700,000 by the end of 2008 - an historic low.

We expect that housing will remain a considerable drag on economic activity through all of 2008, said the report.

To make matters worse, the report says that the inventory situation only continues to worsen. Homebuilders are now looking at more than a nine months\' supply of inventory. The current supply/demand environment does not favor a swift recovery in the housing market, in our view, according to the report.