Survey sees no housing recovery until 2020

  • Article by: JIM BUCHTA , Star Tribune
  • Updated: September 30, 2011 - 8:44 PM

The national survey of bank risk managers found that most expect problems to persist in the housing market for years.

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A home sale sign indicating a new price is seen here in King City, Ore., Tuesday, May, 31, 2011. A new survey of risk managers across the country found that about half of them don't expect housing prices to return to 2007 levels until 2020.

Photo: Don Ryan, Associated Press - Ap

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Bankers have dusted off their crystal balls, and what they see isn't pretty.

A new survey of risk managers across the country found that about half of them don't expect housing prices to return to 2007 levels until 2020. The survey by consumer credit firm Fair Isaac Corp. and the Professional Risk Managers' International Association found that most expect mortgage defaults to be a significant problem for years.

"They don't see things getting any better, and the data reflects that," said Andrew Jennings, chief analytics officer at Minneapolis-based Fair Isaac (also known as FICO) and head of FICO Labs. "They don't see the future being any brighter."

While clearly one of the most pessimistic views of the housing market to date, the FICO report is one of several recent assessments to point to a long and slow recovery.

Pat Newport of IHS Global Insight said that while he thinks the banker survey is severe, it's not far from his own forecast, which calls for house prices to return to 2006 levels by 2017.

"Their call is pessimistic, but I don't think it's unreasonable," Newport said.

At a time when some housing fundamentals have never been better -- mortgage rates dropped to record lows this week -- such warnings leave prospective buyers and sellers in a difficult position. Act now? Or wait out the market?

Jennings said the survey didn't try to address those specific questions, and he urges consumers to focus more on the health of local markets. Key, he said, is jobs. "People are uncertain about whether they'll still have their jobs, which is holding people back," Jennings said.

In the Twin Cities metro area the unemployment rate is slightly better than the national average, and sales agents have said that they expect that home prices have already or are about to hit bottom.

That's why Brad Fisher, a sales manager for Edina Realty and a former president of the Minneapolis Association of Realtors, said that he's surprised by the FICO forecast. "This may be too much of a national perspective to apply to our local market," he said.

The latest data for the Twin Cities metro area from Case-Shiller showed that prices increased over the past few months, but are down significantly from last year. Year-over-year sales are down as well, according to the Minneapolis Area Association of Realtors.

FICO also polled bankers about other financial issues, and those responses were equally as sobering.

•73 percent believe mortgage defaults will remain elevated for at least five more years.

•46 percent of respondents expect mortgage delinquencies to increase over the next six months

•15 percent of respondents believe mortgage delinquencies will decline during that period. 

Jennings said the survey, which is conducted quarterly, was the most pessimistic since 2009.

Across the country, the newest concern for the housing market is that there could be another wave of employment-related foreclosures in the coming months and years, which would cause home prices to fall.

"The message in the market overall is that there are lots of things preventing the foreclosure overhang from clearing," Jennings said.

Jim Buchta • 612-673-7376

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