Fitch expects that California will lead the way with an additional 36% decline in home prices from current levels over the next 12 to 18 months. Florida and Arizona are forecast to see declines of over 20% from today's levels in the same period. Not surprisingly, these states saw the largest run up in prices, with them more than doubling in the 2002-2006 period. To date, home prices in these three states have already fallen by 40% on average.
"Though substantial further home price declines are still to occur, it does appear that the new data is not indicating declines beyond those already anticipated," said Group Managing Director and U.S. RMBS group head Huxley Somerville. "Fitch expects that declines will continue for at least a year before home prices reach bottom."
California, Arizona and Florida account for approximately 50% of the overall non-agency mortgage origination volume by dollar over the past four years. New York has averaged approximately five percent of the dollar volume with New Jersey, Texas and Illinois accounting for three to five percent on average.
Home price declines in the higher volume states outside of California, Arizona and Florida have fared substantially better and are expected to see more moderate further declines. Among these, Texas and Illinois are anticipated to see further declines of 1% and 9% respectively and New York and New Jersey are expected to see further declines of 11% and 20% respectively.
Fitch believes that most of the home price correction will occur in the next eighteen months, with prices exhibiting more stability beginning in late 2010. Fitch's forecast analysis assumes a 1.5% inflation rate for 2009 and 2010 and 3% for the following three years. Nationally, Fitch expects home prices to fall a further 12.5% on average.
