US House prices

worldtraveller

I was reading an interesting article today where an economist with the Federal Reserve Bank of St. Louis reckoned that the U.S. housing market contains nearly US$ 4 trillion of negative equity and that it would take US$ 3.7 trillion to get homeowners with mortgage debt back to preferred LTV levels of 58.4% (the average among mortgaged homeowners in the period stretching from 1970 to 2005), as compared with the average LTV for those with mortgage debt currently at 94.3%.

House prices would need to rise around 62% to narrow the gap to this LTV level and that ain't going to happen soon, with Government intervention very unlikely, as it would need US$ 3.7 trillion (24% of GDP) for a further bail out.

With that in mind, he says that the only alternative is that they have "millions of weak homeowners exit, replaced by new private owners with equity to recapitalize the housing sector."

He reckons that a further 20% decline in national home prices is required to bring in these new buyers, with the amount of mortgage debt that must be eliminated then being US$4.97 trillion, or 50% of current face value.

:eek: