No Home Price Recovery Until 2020 Puts Awful Weight on Economy

The U.S. economy cannot grow with the double burdens of an ongoing drop in home prices and unemployment that may hover above 8% for another two years. One or the other circumstance has to improve to restart consumer spending. New forecasts indicate that home prices will not be the catalyst of a recovery without a radical attempt at a solution.

Research firm FICO (NYSE: FICO) polled experts about the home market and the results predict the value of houses will remain dismal for years. A new survey, conducted for FICO by the Professional Risk Managers’ International Association (PRMIA), shows that “When asked if housing prices nationally would climb back to 2007 levels before the year 2020, 49 percent of respondents said no.” Three-quarters of the same group said that defaults will remain at high levels for five years and mortgage delinquencies will rise for at least six more months.

The FICO data confirms comments from housing experts, such as Robert Shiller, who think home values may drop considerably for the next year.

The sentiment shows once again that the federal government’s challenges to turn the economy cannot rely only on an improvement in joblessness, which is a tremendous hurdle on its own. There will have to be a plan to reset mortgage prices nationwide to make any recovery complete. And a program of this kind would be even more complex than most employment legislation. The home market works its way through the banking system and through the complex data and decisions: which mortgages are underwater, which homeowners deserve adjustments, who can afford to pay for home loans if they are lowered, and what the fairness is when some people receive help and others do not.

Just because the solution to a problem is endlessly complex does not mean it is impossible to spark a nationwide recovery. Without some solution, the economy will remain mired in its current state for years.

Douglas A. McIntyre