Citi: House prices could fall for another two years

Citigroup chairman Win Bishcoff said that housing prices in the US and Britain could fall for another two years before leveling off.  It sounds nice, but it’s wrong.  House prices are going to continue falling for long than two years - especially in highly-speculative areas like California, Florida and Nevada.  The reason?  Option ARM and Alt-A loan resets that start to kick-in in earnest around 2010.  See below graph.

So while various pundits and “people in the know” will continue to throw out numbers that sound far enough off to not sound foolish, they will continue to be wrong until they address the second wave of resets that must wash through the system.

From Reuters:

Citigroup chairman Win Bischoff has warned that house prices in Britain and the United States are likely to keep falling for another two years.

The chairman of one of the world’s most powerful banks told the BBC in an interview that he expects it will take two years for the markets to stabilise.

He also said he expected the credit crunch could continue through until 2009.

And the graph that makes me highly skeptical of any talk of a recovery prior to the second wave.

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