Merrill Lynch and Lawrence Yun - The Housing and Mortgage Crisis

 Yesterday Merrill Lynch forecasted a 15% drop in property values for 2008, with another 10% forecasted for 2009. Having sold loans to Merrill and understanding how lax their appraisal underwriting standards were, I’m not surprised at the forecast. Lawrence Yun, squad cheerleader, ugh chief economist for the National Association of Realtors immediately responded by saying that Merrill’s comments are way too pessimistic. He concluded his comments by saying, "we see stable price conditions for 2008."

While Yun is viewed by yours truly as a propogandist, his latest rendition of Mr. Rodgers neighborhood will ultimately serve as the icing on his five layer cake of spin. With the worst markets like southern California, already having seen value drops in excess of 10% over the last 12 months and some of the more stable markets like Dallas, Texas beginning to see cracks in the foundation (no pun intended) of the housing market, it’s hard to imagine what kind of forecasting models Yun is utilizing. No, the sky is not falling, but it’s high time the NAR and Yun began to see the real estate market for what it currently is - an over-inflated juggernaut that is primed for a correction.

That said, I think that 15% across the board is somewhat excessive. There are a number of markets that didn’t see the run-up in values and will likely help to serve as a counterbalance to the over-inflated markets. Check this blog a year from now and remember that you heard it hear first. 2008 will see an 8% drop with 2009 coming in at 12%. Why is it higher in 2009? The subprime resets we’re bracing for won’t truly be felt in full force until next year. Yes, they will peak by mid-year, but remember the loan first needs to default and then get foreclosed on before it can even be resold. As the foreclosed properties start to pile up, it will take longer to move them. This will force prices down even further. Remember, it’s a trickle effect.

Brace yourself folks. We’re in for a bumpy ride.