Lehman Brothers: Home Prices Haven't Hit Bottom Yet

Sun. July 27, 2008; Posted: 10:34 PM

(RTTNews) - Home prices, measured by the S&P Case-Shiller index, are likely to fall further in May, say the analysts at Lehman Brothers. We expect the 20-city composite to decline 16.4% y-o-y and the 10-city to fall 17.5% y-o-y. This drop would bring average home prices back to summer of 2004 levels. In the April report, home prices surprisingly rose on a monthly basis in eight of the 20 metro areas surveyed. However, we attribute most of the rise to seasonal distortions as prices are typically high during the spring selling season. That said, we will, of course, carefully monitor the trends in these areas for evidence of a more sustained recovery in prices. In the bubble markets, such as Las Vegas, Phoenix and San Diego, home prices have continued to fall at an accelerating pace. Given the huge overhang of homes for sale in these regions and rising foreclosures, we expect downward pressure on home prices will continue through the end of next year and likely into 2010.

We expect consumer confidence to fall to 49 in July from 50.4 in June. A resurgence of financial market distress, which led to a sell-off in the equity markets and an increase in mortgage rates, likely depressed sentiment. In addition, the labor market has continued to weaken, with the June survey showing a rise in the percentage of consumers reporting that jobs were hard to get. However, the drop in oil prices should provide some offset. Consumers are very worried about future financial prospects, as suggested by the record low expectations index.

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