Moody's Forecasts Home Prices to Drop 7.8% in 2010

In case anyone assumes home prices have bottomed, this Business Week article overviews a lot of good reasons why that probably isn't true.

One of which is Moody's estimation that residential home prices will drop 7.8%.

What they are calculating is the foreclosure rate, the high unemployment rate and the withdrawal of the Federal Reserve buying mortgage backed securities, in addition to a first time home buy tax credit being modified and expiring.

Thanks to the feds' bounty of tax credits, purchases of mortgage securities, interest-rate cuts, and home loan programs, new and existing home sales are up. The median home price rose, to $177,900. What happens in 2010 depends on whether the market can stand on its own.

Housing prices have dropped 30% nationwide since 2005 and yet another gloomy prediction: foreclosures in 2010 are projected to be close to 2 million.

Moody's also forecasts a 3.4% home price rise in 2011 and this is assuming the economy is well into recovery at that point.

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I would take a 10% decrease in price if it meant a 20% increase in sales volume. I think that is exactly what we will see during inventory burn-off.