Home Values In 2009

Forget the old saw that all real estate is local. What's pummeling housing prices in your nabe is the same thing that's hurting them around the country: the credit crisis.

You know the drill - banks' troubles have made it harder for many home buyers to get mortgages, and those who do qualify have to pay more. A borrower with good credit and a 20% down payment recently got charged an interest rate of 6.7%, on average.

It's true that this rate is not historically high (rates often surpassed 9% in the early 1990s). But it's more than the 6.2% that the same borrower would have paid at the beginning of 2008.

The fact that mortgage rates have remained stubbornly elevated despite the government takeover of Fannie Mae and Freddie Mac leads some experts to believe that those rates are not headed down anytime soon.

Then look at the fact that 18.6 million homes in this country are now sitting vacant, more than at any other time since the Census Bureau began tracking that figure in the 1960s. And that 2.8% of U.S. mortgage loans are now at least three months in arrears, up from 1.4% a year ago. That rate is projected to peak in early 2009.

But if a recession lasts for three-quarters of the year, as some economists are predicting, the number of foreclosures could remain high longer. Add it all up and you have another lousy year for real estate.

Home prices are down 20% nationwide since their peak in July 2006, according to the S&P/Case-Shiller home price index. Economist's expects another 20% decline in home prices next year.

The damage will likely hit even areas that have so far escaped many problems, such as New York City. It looks like we won't see the market turning until late 2009.