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Bank Risk Managers: Home Prices Won't Recover Until 2020

Tuesday, 04 Oct 2011 08:41 AM

Home prices are unlikely to recover before 2020 and mortgage defaults will persist for years, according to a recent survey of bank risk managers.

The Professional Risk Managers’ International Association latest quarterly survey of bank risk professionals done for Fair Isaac Corporation shows that bankers expect delinquencies on consumer loans to rise, underwriting standards to become stricter, and the housing sector to continue struggling far into the future.

“Housing has been an enormous drag on the economy for over three years as U.S. households lost trillions of dollars in equity,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs.

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(Getty Images photo)
“While the housing sector will almost certainly gain strength during the next nine years, many bankers clearly believe prices will remain depressed for half a generation."

"This puts the devastation of the housing crash into perspective.”

Among bankers surveyed, 49 percent said that recovery would not occur until 2020 and 73 percent believed mortgage defaults would remain elevated for at least five more years.

Furthermore, 46 percent of respondents expected mortgage delinquencies to increase over the next six months, and only 15 percent of respondents believed mortgage delinquencies will decline during that period.

Only 15 percent of respondents expect mortgage delinquencies to decline during that period.

Housing prices nationwide could keep falling and might not bottom out for years, says Yale Professor and housing expert Robert Shiller.

In February, Shiller said housing prices could still fall 10 percent to 25 percent in real terms before hitting bottom. He recently told Yahoo’s The Daily Ticker he's standing by the prediction, adding that the economic big picture is looking worse.

"I think the economic situation looks more precarious now," says Shiller, one of the authors of the S&P Case-Shiller Home Price Index, which was down 4.1 percent year-on-year in July although up from previous months earlier this year.

Bankers also appear pessimistic about consumer spending, with 64 percent of respondents expecting credit card usage to remain below pre-recession levels for at least five more years.

Bloomberg reports that a Janney Montgomery Scott analyst predicted that Visa and MasterCard will increase fees on what the retailers pay the credit card issuers "small-ticket purchases."

For example, on a $2 purchase, the fee would increase from 8 cents to 23 cents — over 10 percent of the purchase.

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Home prices are unlikely to recover before 2020 and mortgage defaults will persist for years, according to a recent survey of bank risk managers. The Professional Risk Managers International Association latest quarterly survey of bank risk professionals done for Fair...
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Tuesday, 04 Oct 2011 08:41 AM
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