House prices to fall in 2008, 2009: Freddie Mac

LONDON (Reuters) - House prices will fall throughout 2008 and 2009, while foreclosures will continue to climb, Frank Nothaft, chief economist at U.S. mortgage finance company Freddie Mac, said on Tuesday.

He forecast that the price index compiled by the Office of Federal Housing Enterprise Oversight (OFHEO), the regulator for Freddie Mac, would fall 10 percent peak-to-trough over two and a half years, which would translate into a 17-18 percent decline in the S&P/Case Schiller index.

The two indexes are differently weighted, with the S&P/Case Schiller index including a wider variety of mortgages.

Nothaft also forecast that foreclosures would continue to rise above the 1.3 million pace recorded in 2007.

“2008 is not going to be a pretty year,” Nothaft told the Euromoney Bond Investors Congress in London. “We’ll see some improvement in 2009 -- but not for house prices.”

The problems in the U.S. housing market have spread around the globe as growing issuance of mortgage-backed securities has meant many international banks are exposed to U.S. home lending.

Freddie Mac is due to report results on Thursday, with analysts forecasting a fourth-quarter loss of $2.1 billion.

Nothaft said there was a “significant risk” of recession in the U.S., or that the economy might already be in recession.

Even if it avoided a recession, he said growth would be so weak that it would continue to weigh on the housing market.

Reporting by Richard Barley, editing by Will Waterman