6 to 8 Percent Home Price Decline Predicted

By Jackson Griffin

An additional decline of 6 to 8 percent in U.S. home prices before finally reaching bottom has been predicted by Scott Simon of Pacific Investment Management Co., reports an article in Bloomberg Businessweek.

The reasoning? Possible home buyers are unable to move due to heightened restrictions for government-backed loans and banks being even more stringent than Fannie Mae, Freddie Mac and the Federal Housing Administration, Simon said in a radio interview on “Bloomberg Surveillance” with Tom Keene.

“If you can borrow, housing is so cheap, but if you can’t borrow it’s infinitely expensive,” said Simon, the mortgage head at Pimco, which runs the world’s largest bond fund.

According to an S&P/Case-Schiller index, the housing decline has dropped property values by almost 31 percent since the peak in the middle of 2006.

If drops of 15 or 20 percent more were to occur, a “dire situation” where almost half of U.S. homeowners with mortgages would owe more than their properties are worth – raising the rate of underwater homeowners by nearly a third, he said.

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