Most people will consider 2008 as one of the worst periods on record for homeowners. The collapse in the subprime market led to a surge in foreclosures. The increase in foreclosures spooked investors who then pulled the floor out from under the market and caused foreclosures in the broader markets. Finally, this led to lower valuations across the board for the majority of homes in the United States. So, where are home prices headed in 2009?

Many economists believe that home prices will continue to fall in 2009. Ken Rosen, a prominent economist, told attendees at the World Economic Forum in Davos that he expects home prices to drop an additional 6% to 7% in 2009. He believes that the housing market downturn is only ¾ complete and the cumulative slump could reach 24% this year. However, he suggested that the government could take actions to prevent a slump by instituting a foreclosure moratorium to stabilize the economy.

Despite the gloomy reports, there is some positive news in the housing sector that came out today. There was a sharp rise in purchasing of foreclosure properties from banks that were holding them far below value. The good news is that 1 in 6 houses are in foreclosure, so this type of buying could help improve the sector for the rest of homeowners. Higher valuations in their neighborhoods and a stabilization in prices should help improve the long-term value for everyone.

So, expect a decline in the first half of 2009 but the signs of a recovery in the second half of 2009.