This could be bad for the FHA program, which is supporting 30% of the home purchases. If home prices drop, then the FHA insurance fund will run out of money and program will need a federal bailout. Potentially, 30% of the homebuyers will need another avenue for financing.
JPMorgan Securities concluded that if existing home sales fail to reach the 5.5 million level next year, the nation could be looking at another 5% decline in home prices in 2012. Overall, by the end of 2011, home prices will have dropped 3% this year and are expected to fall another 1.6% in 2012.
While the report is not overly optimistic, it does take note of several positive developments, including higher demand in November, increased consumer confidence and an uptick in job gains during the month.