Fannie Mae's Chief Economist Issues Warning On Home Prices

The San Francisco Chronicle reports:

David Berson, chief economist for mortgage giant Fannie Mae, said he sees worrisome trends that suggest continued downward pressure on sales and prices from coast to coast.

For one thing, the inventory of unsold homes on a nationwide level has risen. Berson said that, at the current pace of sales, it would take seven months to sell off all the single-family homes now on the market. From 1999 through 2005, this same indicator averaged 4.5 months.

Berson said that in many locales, existing sellers also will have to compete with a large number of unsold new homes, roughly 570,000 nationwide as of June.

"We've never had more (new) homes for sale," he said.

As inventories rise, one important group of buyers -- real estate investors -- is starting to trickle out of the market, Berson said. A year ago, investors accounted for roughly 13 percent of home sales, whereas now their share is closer to 12 percent. A rate of 6 percent would be nearer normal.

Perhaps the biggest unknown is what happens to the large numbers of so-called nontraditional mortgages -- often favored by new buyers in high-priced places such as the Bay Area -- as interest rates rise, Berson said. Such loans often have features that cause big increases in monthly mortgage payments.

"There could be some sort of payment shock when these things adjust upward," he said.

It appears the bubble burst in some areas.If many of these "investors" try and dump their properties with an excess supply already on the market:prices can go only lower.Particularily worrisome are areas with declining populations.