Home price slump just over half done

By Lynn Adler - Analysis

NEW YORK (Reuters) -The two-year U.S. home price slump is just over halfway done with little relief in sight as the market needs to work through a stockpile of unsold houses that is climbing as foreclosures jump.

House prices nationally tumbled more than 16 percent since the summer of 2006, and will slash at least 25 percent off their peak values before stabilizing, top Wall Street analyst and economists told the Reuters Investment Outlook Summit this week.

Housing has been the biggest risk to the economy and there is still "fundamental uncertainty" about the degree of slump need to restore better balance between supply and demand, said Martin Feldstein, Harvard University economics professor in Cambridge, Massachusetts.

Prices need to sink another 15 percent, "but there's no reason why it has to stop there," said Feldstein, also outgoing head of the National Bureau of Economic Research. "Just as we could have a bubble on the upside we could have a spiraling down in house prices."

By one closely watched measure, the national Standard & Poor's/Case-Shiller home price index, house prices in March had tumbled 16.2 percent from their peak in the second quarter of 2006.

This index raced up by 90 percent from the start of 2000 until its peak, S&P said.

The losses so far leave many owners with mortgages larger than the value of their homes, a situation known as "negative equity." That makes it harder for them to sell or refinance, and many are simply walking away from their houses.

"It wouldn't surprise me to see a further decline to 25 percent nationally in housing prices," said veteran Wall Street analyst Henry Kaufman. "There is still significant housing inventory that has to be worked through."

In a vicious cycle, the home price erosion is propelling more owners into foreclosure and those foreclosures are adding to the burdensome supply and further pressing prices lower.

Foreclosures and late payments set record highs in the first quarter, with about one in a hundred homes pushed into the foreclosure process, according to the Mortgage Bankers Association.

RBS Greenwich Capital sees another 10 percent price drop "well within the bounds," considering unsold supply is certain to grow with foreclosures, said Alan Ruskin, the firm's chief international strategist.

"You still have to hit the peak in inventory to have any sort of confidence that a year from now there will be a bottom in prices," he said.

(For summit blog: summitnotebook.reuters.com/)

(Editing by Theodore d'Afflisio)