By Sharon L. Lynch -
April 16 (Bloomberg) -- JPMorgan Chase & Co. Chief Executive Officer
Jamie Dimon said he expects U.S. home prices to drop as much as 9
percent this year as even borrowers with the best credit have
difficulty keeping up their mortgage payments.
``Real estate is getting worse,'' Dimon said in a conference call
today with investors after the bank, the third largest in the U.S.,
re****ted first-quarter earnings. ``Home prices we still expect to go
down.''
The bank re****ted a 50 percent drop in net income on $5.1 billion in
writedowns and loan-loss reserves linked to home-equity loans,
subprime mortgages and financing for leveraged buyouts. The bank last
month agreed to pay $2.4 billion for Bear Stearns Cos., which had been
the biggest mortgage bond underwriter, after a two- day run on the
firm pushed it to the brink of bankruptcy.
Dimon's forecast is more optimistic than many homebuilding analysts
and executives. Deutsche Bank analyst Karen Weaver said in February
that prices may fall as much as 26 percent from the third quarter of
2007 before hitting bottom. PMI Group Inc., the second-largest
mortgage insurer, last week said U.S. housing prices will probably
fall by an average 20 percent from their peak in 2006.
The National Association of Realtors predicts a 1.4 percent decline in
the median price of existing homes this year and a 3.6 percent decline
for new homes. In 2007, the NAR lowered its housing and economic
forecast every month.
First Drop Since 1930s
Last year, the U.S. median price for a single-family home dropped 1.8
percent to $217,900, the first annual decline in records that go back
to 1968, according to Lawrence Yun, chief economist at the Chicago-
based Realtors association. It was the first national price drop since
the Great Depression, he said.
Home loans at least 30 days past due rose to 5.8 percent at the end of
last year from about 5 percent at the start, according to data from
the Wa****ngton-based Mortgage Bankers Association.
Even delinquencies on prime loans to borrowers with the best credit
are climbing, Dimon said. Last year, defaults in that category rose to
3.2 percent as people with adjustable-rate mortgages were unable to
keep up payments after their low introductory interest rates
increased.
JPMorgan's charge-offs of home-equity loans may double by the fourth
quarter, Chief Financial Officer Michael Cavanagh said. They totaled
$447 million in the period ended March 31.
``This climate is not expected to change in the near term,'' Walter
O'Haire, senior analyst with Boston-based financial research company
Celent, said in an e-mailed statement.
Recovery in 2009
Wachovia Corp. CEO Kennedy Thompson said the U.S. economy won't
recover until late 2009.
``Until housing prices find a bottom, the capital markets are going to
be frozen,'' Thompson said during a taping last night of a University
of North Carolina Television program. Wachovia, the fourth-largest
U.S. bank, is based in Charlotte, North Carolina.
At a Dec. 19 conference, Bank of America Corp. CEO Kenneth Lewis said
the U.S. housing slump will continue until 2009.
The ``only answer is time and more pain,'' said Lewis, who heads the
nation's second-largest bank by total assets.
Dimon said credit markets may start to recover soon. Lehman Brothers
Holdings Inc. CEO Richard Fuld, Goldman Sachs Group Inc. CEO Lloyd
Blankfein and Morgan Stanley Chief John Mack have made similar
comments.
Credit Market Recovery
Fuld told shareholders at the firm's annual meeting yesterday that the
``the worst is behind us.'' Blankfein told investors last week that
``we're closer to the end than the beginning.'' Mack said it will be
``a couple of quarters'' before credit markets recover.
Banks, securities firms and lenders have re****ted $245 billion in
asset writedowns and credit losses since the beginning of 2007 as U.S.
home foreclosures, led by defaults among subprime borrowers, climbed
to an all-time high. That's resulted in a decline in lending,
according to the Mortgage Bankers Association, which estimates that
residential loan originations fell 10 percent in the first quarter to
$565 billion.
JPMorgan's total mortgage lending rose 30 percent in the quarter to
$47.1 billion. The bank made almost no new subprime loans in March,
Cavanagh said.
``We're still open for business in the mortgage side,'' Dimon said.
``These franchises are great franchises we want to grow for decades,
not flip and flop every time because the economy sneezes.''
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To contact the re****ter on this story: Sharon L. Lynch in New York at
sllynch@[EMAIL PROTECTED]
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