By Jason Simpkins
Staff Writer

Housing prices will continue to decline and the downward spiral may not end until sometime in 2010, industry executives said this week.

Speaking at the Mortgage Banker's Association's annual convention Monday, executives from Fannie Mae and Freddie Mac, as well as the CEOs of two other major mortgage banks, said U.S. housing prices would continue to decline throughout next year, according to a report by The Associated Press. Indeed, several of America's leading financial analysts presented a dour outlook for the U.S. housing market at the convention, and few of the executives had anything positive to add.

David Lowman chief executive of J.P. Morgan Chase & Co. (JPM), Paul Bibb CEO of National City Mortgage (NCC), and Thomas Lund and Patricia Cook of Fannie Mae (FNM) and Freddie Mac (FRE) held a round table discussion attended by most of the convention's 4,000 participants. The consensus seemed to be that the recent spike in foreclosures and saturation of unsold homes would leave the housing market reeling for the next two years. 

 "It's going to be a long time before we see [the housing market] bottom out and recover," said David Lowman, "There's too much inventory in the marketplace." Lowman also said the price decline may not end until 2010.

Thomas Lund painted a slightly more upbeat picture, saying prices would flatten out in 2009 – before gradually rising. Lund added that he believed "this year we will see a 2% decline in national home prices, and we're projecting about a 4% decline next year."

Patricia Cook, chief business officer at Freddie Mac, said that investors would need to see a slowing in the rate of foreclosures before regaining confidence in the mortgage-backed securities market. That revival isn't expected to occur anytime soon, as many adjustable rate mortgages will be resetting over the next year. The Federal Deposit Insurance Corp.  (FDIC) estimates that 2.5 million mortgages made to borrowers with poor credit will reset at sharply higher rates by the end of 2008.

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Both Cook and Lund have lobbied Congress to infuse more cash into the market and provide lenders with the leeway to help homeowners refinance. Some lawmakers have joined them in urging regulators to let Fannie Mae and Freddie Mac (two government sponsored institutions) increase their holdings of mortgage debt by 10%.  The current limit stands at $735 billion.

According to Lund, higher investment caps, even temporary, would help restore investor confidence.

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