JPMorgan's Dimon Says U.S. Real Estate Market `Getting Worse'

JPMorgan's Dimon Says U.S. Real Estate Market `Getting Worse'

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 are having 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., reported first-quarter earnings. ``Home prices we still expect to go down.''

The bank reported 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.

Dimon's outlook is more pessimistic than the National Association of Realtors, which 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 in the 1930s, he said.

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.

Dimon also said he believes 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 reported $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 led to 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.''

BLOOMBERG