Meredith Whitney Predicts 25% Fall in Housing Prices

Oppenheimer star analyst Meredith Whitney predicts at least a 25% fall in home prices from current levels:

The credit crisis that began last summer has intensified so much that any U.S. government bailout plan has "little hope" of improving core fundamentals over the near and medium term, said analyst Meredith Whitney. ...

"Since the onset of the credit crisis, over $2 trillion less liquidity has flown through the U.S. domestic capital markets than during ... a year prior," Whitney said.

"With that much less available capital, both consumers and corporations have and will spend less," she added. ...

"Credit market disruption has had underappreciated consequences on the economy ... what started last summer has accelerated and intensified so much so that we believe any government bailout plan has little hope of improving core fundamentals over the near and medium term," Whitney said. ...

Oppenheimer's Whitney expects the country's GDP to take a hit from likely moves by state governments to cut costs.

Given that over 12 percent of the U.S. GDP is driven by state and local government spending, and with many key states' 2009 budgets being under-funded, governments will be forced to cut costs and this will weigh significantly on GDP, she said.

Whitney said home prices were not close to bottoming and expects prices to ultimately be at least 25 percent lower from current levels. She also sees further declines in homeownership rate.

The unemployment rate, which is up over 40 percent year-on-year in key states, is "headed materially higher," Whitney said.