Housing prices to free fall in 2008

Check out this article where Merrill Lynch predicts 15% home price drop

I read the article and If you think about it, this really makes a lot of sense.

Foreclosures are the key to driving down prices and deflating the bubble in many markets around the USA. As the number of foreclosure rises and banks begin to dump them on the market at greater and greater losses, corresponding home prices will eventually be driven back to 1999 levels as I have predicted.

A regular homeowner can only stomach a certain amount of loss, additionally, you cannot sell the house for less than you owe on the mortgage unless the mortgage holder is granted a short sale. If this was all their was to the market, prices would probably remain stagnant or fall just enough to be in the level where buyers can obtain financing.

Foreclosures and Bank owned properties change everything. Banks are not in the business of managing and maintaining properties. They will hold them for a certain time period hoping to get their money back, however, they do have the power to dump them for mark to market value and when the inventory builds, they will dump these houses at cut rate prices.

This in turn drives down comparable sales in the whole neighborhood and in turn, forces everyone to lose all their equity in their home just to compete with the REO properties for buyers interest.

House prices will continue to drop as long as foreclosures are occuring, and with the second wave of option arms resetting in the next 1-3 years it's going to get much worse than anyone can even imagine.