The ratings agencies are not very optimistic

The ratings agencies are not very optimistic about home prices. Fitch is looking for an additional 36% in California. Sounds bad but realistic for once. I don't expect another 36% in the IE or even in the median price. But I do expect a big drop in the high end areas that are still defying gravity. South OC, West LA the better area of San Diego and San Fran, etc. Those areas still have a long way to drop. The California Median is still at $221k, a 36% drop would take it down to $142k. That's about where it was in 1987. After the last bubble it bottomed in 1996 at $177k. The reason I don't expect a large fall in the median is that the houses where the big price declines will happen are all at the high end. That could even have the effect of moving the median price up if the high end starts to unfreeze. That would make the number cruncher's heads hurt. Prices tanking and the median going up... Oh wait that already happened in 2007;-)

NEW YORK, Jun 12, 2009 (BUSINESS WIRE) -- Fitch Ratings has taken various rating actions on 543 2005 through 2008 vintage U.S. subprime RMBS transactions in the course of its ongoing review of subprime RMBS.

A spreadsheet detailing Fitch's rating actions on the affected transactions, as well as Expected Loss for each mortgage pool and Loss Coverage Ratios for each bond, is available at www.fitchratings.com under the following headers:

Structured Finance >> RMBS >> Rating Action Reports

....

Today's rating actions reflect Fitch's analysis of expected default and loss from the collateral pool in addition to cash flow analysis of each class. The average updated expected collateral losses as a percentage of the original pool balance for the 2005, 2006 and 2007 vintages are 17%, 39% and 47%, respectively. As a percentage of the remaining pool balances, the average expected losses for the three vintages are 45%, 59% and 55%.

The updated expected collateral losses incorporate performance trends since the last rating revisions which relied on September 2008 remittance data. The projected losses also reflect an assumption that from the first quarter of 2009, home prices will fall an additional 12.5% nationally and 36% in California, with home prices not exhibiting stability until the second half of 2010. To date, national home prices have declined by 27%. Fitch Rating's revised peak-to-trough expectation is for prices to decline by 36% from the peak price achieved in mid-2006. The additional 9% decline represents a 12.5% decline from today's levels.

The home price declines to date have resulted in negative equity for approximately 50% of the remaining performing borrowers in the 2005-2007 vintages. In addition to continued home price deterioration, unemployment has risen significantly since the third quarter of last year, particularly in California where the unemployment rate has jumped from 7.8% to 11%.