2 Bank CEOs Predict Lower US Home Prices

   It is rare to see a bank CEO come out and predict a decline in home prices, but 2 on the same day is unheard of. Today Capital One's Richard Fairbank said:
"I think we feel very cautious about the housing market," Fairbank said. "I think that even despite some of the recent months where home prices have gone up, I think it's a very plausible case for home prices to go back down again."
"Unsold inventory is really at just about an all-time high."
"We are managing to a view that home prices are more likely to be headed down rather than up," he said.
   Regions Financial CEO Grayson Hall mentioned that the bank was preparing for lower prices. From Businessweek:
Home prices in Florida may decline as much as 10 percent, Hall said today at a Barclays Capital investor conference in New York. Prices in the state may hit bottom within six to eight months, he said.
While most market observers would agree, the real question is if prices will be allowed to fall in nominal terms or only in real inflation adjusted terms. The main determinant is the Federal Reserve and whether it will let prices fall any further. Historically, the Fed despises price deflation and will do everything in its power to prevent it from occurring. The preferred from of price adjustment for the Fed is to debase the dollar through inflation. Under this scenario nominal home prices will stagnant for 3-7 years but decline adjusted for inflation. If we do see a nominal decline in home prices (very likely), you can be sure the Fed will initiate QE 2,3,4,5 to stop it.

Black Swan Insights


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