US Home Prices May Decline by a Third Into 2010 as Bonds Weaken Further

US home prices may dip 30 pct, junk bonds to weaken further
Wed Jun 11, 2008 11:53am EDT
(corrected for timeframe)

NEW YORK, June 11 (Reuters) - U.S. home prices may fall as much as 30 percent through 2010 and push high-yield bond valuations close to levels seen during the last recession, a J.P. Morgan analyst said on Wednesday.

"The housing correction is in a down phase," Peter Acciavatti, credit analyst and managing director at JP Morgan Securities Inc, said during a a high-yield bond conference in New York. "We're now going through a phase of deleveraging and the pulling out of easy money."

Home prices may fall 25 percent to 30 percent from their peak in 2006 and not hit bottom until 2010, with greater drops still in subprime mortgage debt markets, he said.

In a separate interview, the analyst said junk bond spreads will push past 800 basis points and may top 900 basis points as the crisis drags out. High-yield bonds now trade at spreads of about 650 basis points over Treasuries, according to Merrill Lynch & Co data.

Acciavatti spoke during a presentation at the New York Society of Security Analysts. (Reporting by Walden Siew; Editing by James Dalgleish)