by Calculated Risk on 7/24/2008 07:00:00 PM

From HousingWire: Fitch Updates Ratings Model; Projects Steep Housing Price Declines

Fitch Ratings said Thursday that it had enhanced its U.S. residential mortgage loss mode ... Fitch’s revisions suggest ... a very bearish take on housing prices over the next five years: Fitch said in its report that it is expecting home prices to decline by an average of 25 percent in real terms at the national level over the next five years, starting from the second quarter of 2008.

And that’s the base case scenario.
...
Fitch will also roll out new 25 MSA-level risk factors influencing frequency of foreclosure and loss severity estimates, the agency said; the 25 MSAs chosen are those that have exhibited strong non-conforming mortgage lending activity in the past.

“Some MSAs such as San Diego and San Francisco, CA are expected to experience home price declines by as much as 47 percent and 33 percent over the next five years, while home prices in MSAs such as San Antonio, TX are expected to appreciate by 7 percent,” [Huxley Somerville, group managing director and head of Fitch’s U.S. RMBS group said].

It's important to note these are real prices - adjusted for inflation. A 7% increase in 5 years, with 3% inflation per year, is a nominal price decline of about 8%.

[sarcasm]That is strange about San Francisco - a number of people at the Inman conference told me San Francisco is special - and immune - and prices won't decline here. [/sarcasm]