USB predicting interesting declines in 2007

USB bank is predicting a 10% drop in US home prices in 2007. Head on over to the bubble news network for more details. More than one video discusses the downturn.

http://www.paperdinero.com/BNN.aspx

What interested me was the regions they picked out for the most declines:
1. Florida
2. California (Southern California)
3. Nevada
4. DC

(I might have missed Pheonix...)

Getting information about DC is tough. But I think we all know about the others.

What does a 10% decline mean? For most buyers, wait. In southern California, a 10% drop in prices means about a 100k price drop in the nice neighborhoods. While those prices are dropping, it also means that the would be buyer is able to save cash.

What also interested me is the statement by the USB rep that a decline in home prices entails a drop in consumer spending which will trigger a drop in prices. Ok, makes sense... That will likely force a drop in the Fed rates (short term rates).

This finally ends the inverted yeild curve. I quite frankly expect long term yields to slowly keep climbing. Since the typical mortgage payee's ability to sustain a higher payment isn't there, this doesn't translate into a penny of higher monthly carrying costs. In fact, it implies a dramatic cut in the sales prices.

My prediction is that a 10% drop in 2007 is about right. I'm entertaining estimates of 7% to 15% drops nationally. In southern California? Much higher in San Deigo and OC. But what about the south bay? Due to the extreme prevelence of risky loans, probably a little worse than the national norm, but not much. Home prices are sticky. REOs take a long time to get to market. People are greedy and loath to "realize a loss."

And job losses will force it. First in the mortgage markets, than realtora, lumber, furniture, airlines (and other high end services).

It will be an interesting year,
Neil