Deutsche Bank Sees Lower Peak-to-Trough House Price Decline
Deutsche Bank's (DB) outlook on the residential housing market improved slightly from June but remains cautious, with the firm expecting the nationwide trough in another year. "So, is the housing crisis over? Only if the technicals (i.e. a little momentum and glimmer of change in psychology) can outrun the fundamentals," researchers said in a Deutsche Bank Securities report. "But the technicals are fragile and may be fleeting, while the fundamentals remain very challenging and entrenched." For example, serious delinquencies rise as unemployment climbs, inventory remains high and affordability slips in some areas. Summer marked a reversal in the downward trend of house prices, although recent gains remain modest. Deutsche Bank is now estimating an additional 10.5% current-to-trough decline from house prices in Q209, compared with the 14% decline previously published. The peak-to-trough decline, measuring total decline from the height of house price values, now sits at 38.1% -- slightly below 41.7% previously published in June. The housing market "positively surprised" housing analysts including Deutsche in recent months. "If indeed the U.S. homebuyer has had a change of heart, and fire-sale home prices no longer engender fear as much as they inspire greed, it may well be so because of government policies," researchers said. The report points toward the conservatorship of Fannie Mae (FNM) and Freddie Mac (FRE), the buying of agency mortgage-backed securities (MBS), the incentive program for loan modifications and the first-time homebuyer tax credit as some major government policies aimed at stabilizing the housing market. First American CoreLogic discussed the effect of government initiatives on lowering mortgage interest rates in a recent white paper. Low interest rates have led to a "boom" of sorts in refinance mortgage production. "Given the economic recession that the United States is experiencing and the fiscal and monetary stimulus being applied by the United States government, what are the economic benefits from this refinancing activity?" FirstAm said in the white paper. "The answer lies in the purpose and results behind government action: a direct result of Federal Reserve easing measures and the Making Home Affordable Refinance program (HARP) was a reduction in mortgage interest rates and an immediate corresponding increase in refinances." Write to Diana Golobay.