predicts metropolitan areas that will suffer housing price declines and when the top and bottom of the market will occur.


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Moody’s Study: Housing Market Downturn in Full Swing

WEST CHESTER, Pa., Oct. 4 /PRNewswire-FirstCall/ — Led by the Southwest coast of Florida, house prices in many U.S. metropolitan areas could see double-digit declines in the coming months and even into 2009, according to a new study that assesses the severity of the unfolding downturn.

Sharp declines, some nearing 20 percent, are forecast by a new study, “Housing at the Tipping Point,” released today by Moody’s of West Chester, Pa. The greatest price drops, apart from Southwest Florida, are forecast in many metropolitan areas of California, Arizona, Nevada, and the greater Washington, D.C., and Detroit areas.

“The housing market downturn is in full swing,” said Mark Zandi, chief economist of Moody’s, who added that “to date, the housing downturn has been generally orderly and is characterized best as a correction and not a crash. Whether the housing correction unravels into a crash will largely depend on the secondary or indirect effects from the housing downturn.”

Those effects include the impact on the job market, on consumer spending via the housing wealth effect, on lending institutions, and on the global financial system as mortgage credit quality weakens.

“The larger these effects, the more serious the blow to the broader economy, which, in turn, will reverberate back onto the housing market,” said Celia Chen, director of housing economics at Moody’s, adding, “So far, the indirect effects from the housing downturn have been very modest.”

The unwinding of the long housing boom began in the summer of 2005, when interest rates began to creep up. While the long-term interest rates that govern the costs of fixed-rate mortgages have risen modestly, short-term rates and adjustable mortgage rates have risen substantially more. The housing downturn has become more dramatic with the departure from the market of the “flipper,” the so-called buyers who intend to re-sell their properties quickly at a profit in an environment of rising prices.

“All of this has seemingly occurred overnight,” said Zandi.

The study’s results are drawn from mathematical models that incorporate many types of data, including housing prices and statistics on supply and demand, affordability, employment, and population movement.

Moody’s Corporation (NYSE: MCO) is the parent company of Moody’s Investors Service, a leading provider of credit ratings, research and analysis covering debt instruments and securities in the global capital markets, Moody’s KMV, a leading provider of credit risk processing and credit risk management products for banks and investors in credit-sensitive assets serving the world’s largest financial institutions, and Moody’s, a provider of economic research and data services. The corporation, which reported revenue of $1.7 billion in 2005, employs approximately 2,900 people worldwide and maintains offices in 22 countries.

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