New-Home Sales to Drop 12%, Starts by Record in 2009, MBA Says

By Dan Levy

Oct. 22 (Bloomberg) -- U.S. new-home sales will fall 12 percent next year as housing starts drop by a record, Mortgage Bankers Association Chief Economist Jay Brinkmann said.

``We expect residential investment to decline further through the first half of 2009, due to the excess supply of houses and weakened demand from the recession,'' Brinkmann said yesterday at the group's annual meeting in San Francisco. The MBA also predicts that the U.S. economy will contract in the first half of 2009.

U.S. housing starts will drop to 525,000 in the second quarter of 2009, a record 70 percent decline from the peak in the third quarter of 2005, according to the forecast. Mortgage originations for home purchases will fall 20 percent this year to $912 billion, Brinkmann said.

National average home prices will fall through most of 2009, driven by declines in California and Florida, and unemployment will likely accelerate to 7.8 percent by the first part of 2010, Brinkmann said. Sales will increase by as much as 25 percent in 2010, reducing the glut of new houses, and mortgage originations for purchase will increase by about 2 percent, Brinkmann said.

California, Florida, Nevada and Arizona accounted for 46 percent of U.S. homes entering foreclosure at the end of the second quarter, and had a combined 87 percent increase in foreclosures from the previous quarter, Brinkman said in an interview.

Those states also had the highest U.S. foreclosure rates in August, RealtyTrac Inc., an Irvine, California-based seller of default data, reported last month. Nevada led with one foreclosure filing for every 91 households, followed by California, Arizona and Florida.

Home prices in 20 U.S. cities fell in July at the fastest pace on record, according to the S&P/Case-Shiller home-price index, as mounting foreclosures and contracting consumer spending signaled that the worst housing recession since the 1930s had yet to trough.

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net