There are some who think that the housing crash will only affect those late-to-the-party fools who bought in 2006. Not so, says Kenneth Heebner a manager at a top-performing real estate fund. Prices could roll back to the levels seen in 2003.

Heebner Says Home Prices May Fall 20% Amid Bad Loans

April 12 (Bloomberg) -- Kenneth Heebner, manager of the top-performing real-estate fund over the past decade, said U.S. home prices may plunge as much as 20 percent because of rising defaults on riskier mortgages.

Subprime loans, made to borrowers with a history of missed payments or untested credit, and ``Alt-A'' loans, which require little or no documentation, account for about $2.5 trillion of the $10 trillion in outstanding mortgages, according to Moody's Economy.com. As much as 40 percent of these loans may default, flooding the real estate market, Heebner said.

"It will be the biggest housing-price decline since the Great Depression" Heebner, 66, said today in an interview in Boston. Prices may fall by a fifth in some markets, he said.

That would leave home prices at levels last seen in 2003 and 2004, the middle of boom that lifted prices to a record in 2005. The damage from high-risk mortgages will slow the U.S. economy, though not enough to send it into a recession, Heebner said. Fourth-quarter growth was revised to 2.5 percent from 3.5 percent because of housing, the government said March 29.

Heebner, who co-founded Capital Growth Management in 1990, manages the $1.6 billion CGM Realty Fund. The fund has gained an average of 20 percent a year in the past 10 years, the most of any real estate fund over that period, Bloomberg data show.