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Economists see deeper housing woes this year

A panel of housing experts on Tuesday projected that builders' woes will deepen this year, pushing the prospect of a recovery into 2010 at the earliest.
/ Source: The Associated Press

A panel of housing experts on Tuesday projected that builders' woes will deepen this year, pushing the prospect of a recovery into 2010 at the earliest.

"We do expect '09 to be the down year, to be the bottom," David Crowe, chief economist for the National Association of Home Builders, said during a news conference at the International Builders' Show, which runs through Friday.

The outlook reflects grim forecasts that call for home prices, new construction and home sales to decline this year, while mortgage defaults, foreclosures and unemployment continue to rise.

That dynamic has kept the housing market mired in a slump and homebuilders large and small in the red. The U.S. economic downturn, meanwhile, has crippled any hopes for a near-term housing recovery.

Crowe said he expects the number of new homes constructed to fall by 29 percent this year from last year, but then jump by 34 percent in 2010. He sees new home sales falling 14 percent this year.

"But we are expecting that trough to occur sometime in the middle of this year, and for us to come out the other end of '09 on an upswing," Crowe said.

He noted that the upswing won't be as strong as in previous recoveries because there are too many unsold homes on the market.

"We won't be able to get through those in one year, and we'll still probably have house price declines," Crowe said.

Homebuilders have stepped up incentives, lowered prices and cut back on new construction, but they aren't likely to see better days until the rate of foreclosures slows and home sales pick up, he said.

That's unlikely to happen for many months, however, because consumers' confidence in the economy remains shaken, and the job market will probably continue to deteriorate through the rest of this year, Crowe said.

The builders' trade group has been lobbying for Congress to enact a stimulus package that will entice buyers to enter the market through a combination of a tax credit and lower mortgage rates.

Crowe said the stimulus package being considered by the Obama administration would provide some relief to homeowners facing foreclosure, but not spur new home sales.

Frank Nothaft, Freddie Mac's chief economist, said he expects the U.S. recession to be "relatively long, relatively deep." He projects the U.S. unemployment rate will rise to 8.7 percent by the fourth quarter of this year. The rate hit 7.2 percent last month.

"The single most important trigger event leading to (mortgage) delinquency is unemployment," he said.

Not surprisingly, Nothaft's outlook also calls for default rates on mortgages to keep rising this year, particularly on home loans made to prime borrowers.

He also expects home prices to continue to decline into 2010, but says the housing market should begin to show signs of improvement beginning in the second half of this year as government efforts to stimulate the economy kick in.

David Berson, chief economist for mortgage insurer The PMI Group Inc., said the company's latest risk index shows that 97 percent of the nation's metropolitan areas had a greater probability of home prices falling over the next two years.

"The risk went up ... almost everywhere," Berson said.

In more than half of the major metro areas, the risk of home price declines was greater than 50 percent, he added.

The panel cautiously noted that low mortgage rates, falling home prices and population trends bode well for a turnaround — eventually.