New York, California Metro Home Prices May Fall as Rates Climb

Bloomberg reports:

Anna Morita, a neuropsychologist in the San Francisco Bay Area with near-perfect credit, was certain she could get the loan of her choice to buy an $880,000 three- bedroom house.

Morita, 34, with more than $300,000 for a down payment and a credit score of 825 out of a possible 850, was banking on a 30-year loan with interest-only payments for 10 years. That mortgage became too expensive when her lender quoted a rate of 7.6 percent. She's now applying for another mortgage.

From buyers who can't afford costly loans to homeowners who can't find a buyer, the mortgage market is a mess. Home-loan defaults are at record levels and analysts predict property prices in the most-expensive metropolitan areas of New York, California and Washington, D.C., will fall in the next year in the broadest decline since 1995. Prices already have dropped in a third of U.S. markets tracked by the Chicago-based National Association of Realtors.

``No place will be immune,'' said Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California in Berkeley. ``Inventory is increasing and the demand side is falling off. The psychology has become negative.''

Home values in America's ritziest areas may decline by as much as 11 percent in the next 3 1/2 years, said Mark Zandi, co- founder of Moody's Economy.com, an economic forecasting agency and unit of Moody's Corp. in New York.

Or more than 11 percent.