Prices are expected to decline 5 percent on new homes and from 5 to 10 percent on existing homes, analysts at Keefe, Bruyette & Woods said on Tuesday in a research outlook for 2009. Within the somewhat gloomy outlook, however, came at least a bit of hope: KBW also projected home and asset prices to bottom out in 2009, meaning the crisis might begin to resolve by the very end of next year. Home sales volume has fallen sharply as 2008 has lurched towards an end, with new home sales posting it worst month in over 50 years during November, and existing home sales falling 3.1 percent between September and October. Home prices have fared little better. “We expect both trends to continue,” the analysts wrote in a report. “The weakness that we expect in the housing market in 2009 is driven primarily by our view that there is still excess supply in the market that needs to be absorbed.” That said, the analysts suggested the nation’s housing market could be “near the bottom for sales,” citing a ratio of sales volume compared to housing stock that has reached a historic low. The analysts at KBW even went so far as to forecast higher earnings for home builders in 2009, suggesting that “2008 earnings were reduced by large write-downs on land and inventory,” a trend that isn’t expected to continue, they said. On an operating basis, however, KBW still sees losses for builders. That expectation sits in stark contrast with analysts at Fitch Ratings, who said on Tuesday that they had become significantly more pessimistic about the prospects for home builders in 2009 amid recessionary effects and an ongoing correction in the nation’s housing markets. Mortgages, flat? Surprisingly, mortgage origination volume was projected to remain flat on a year-over-year basis at $1.8 trillion — although KBW said the number is subject to possible (upward) effects of government-initiated intervention programs designed to encourage refinance or home purchase activity. That estimate appears to be as positive as their expectation for housing: it’s also well above recent estimates by both the Mortgage Bankers Association and research firm iEmergent, which have predicted 2009 originations at $1.66 trillion and a range of $1.28 to $1.35 trillion, respectively. KBW did estimate mortgage debt growth to turn out negative due to declining home prices, and outstanding mortgage debt to decrease by 5 percent in 2009. “We believe that this will be a modest negative for portfolio lenders,” analysts at KBW wrote. Servicers are likely to continue to see weak results, as well, as lower rates and a steeper yield curve seem likely to force write-downs of mortgage servicing rights, KBW said. That said, with mortgage volumes not likely to increase, the economic value of MSRs isn’t likely to take an instrinsic hit — as was the case during the recent housing boom — although the cost of servicing is jumping up dr Sidenote: KBW analysts seem bullish on the agency REITs, suggesting that both will benefit from lower interest rates and a steeper yield curve in 2009, as well as a lack of direct exposure to weakening credit markets via their government-led guarantee on assets. They are less bullish on the servicing business, however, suggesting that low interest rates will force writeoffs of MSRs; taken with rising servicing costs tied to delinquencies, and the mortgage servicers could be in for some more pain next year, KBW posited. — Paul Jackson contributed to this report. Write to Diana Golobay at [email protected].