2008 outlook: Housing

Prices will sink even deeper. When it comes to housing, 2008 will be one bleak house scenario.

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By Amanda Gengler, Money Magazine writer-reporter

Make money in 2008:
The entire outlook

(NEW YORK) Money Magazine -- Although home prices nationwide are down 4.2 percent from a year ago, "the worst is yet to come," says Joshua Shapiro, chief U.S. economist at consulting firm Maria Fiorini Ramirez.

Just how bad will it get? According to Fiserv Lending Solutions, the median home price nationwide is expected to tumble 5.7 percent next year, which would make it the worst year for real estate in at least 40 years.

And some previously sizzling markets in places like Florida and Nevada will likely suffer double-digit drops. "You'll probably see a turnaround sooner in the Northeast because there wasn't as much overbuilding," says Patrick Newport of Global Insight, an economic forecasting firm. Even some midwestern cities like Cleveland and Detroit, which never experienced a boom, could see modest drops due to their ailing economies.

The problem stems from that classic economic conundrum: too much supply and too little demand. As of September, some 4 million existing homes were languishing on the market - almost double the number three years ago - in addition to 523,000 new homes.

Homes in foreclosure, projected to jump 25 percent next year to 1 million, further add to the backlog. Lenders, meanwhile, have dramatically tightened their borrowing requirements as defaults have risen, shrinking the pool of qualified buyers.

If you were hoping to sell a home anytime soon, it's a pretty grim picture. Prices aren't expected to rebound until 2009 at the earliest, and most experts think it will take several years for home values to get back to pre-bust levels.

But if you're a homeowner who bought before 2005 and you intend to stay put for a few more years, you'll probably still come out with a healthy profit by the time you're ready to sell. Hoping to buy a new home? You'll find listing prices in many areas lower than they have been in the past couple of years - and plenty of anxious sellers willing to offer you an even better deal.

The wild card: One of the biggest threats to the housing market is that the labor market might weaken beyond current forecasts and some people who lose their jobs might be forced to put their homes up for sale. That would throw even more houses on the market and could lead to an uglier double-digit drop in prices nationwide.

2008 outlook: Investing To top of page

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