Real estate economists pessimistic

BOB DART; Cox Washington Bureau

Washington --- As sales and prices of new homes recorded their steepest drops in a decade Thursday, economists warned the nation's home builders that the sinking sector may not hit bottom for another year.

"Housing is still a long way off from recovery," Nariman Behravesh, the chief economist of Global Insight, warned at the Spring Construction Forecast Conference of the National Association of Home Builders.

"You've got to get home buying going, or this thing could spiral downward indefinitely," said David Seiders, chief economist of the NAHB, in urging Congress to enact a temporary tax break at least for first-time home buyers.

Economists at the conference agreed that both prices and housing starts are likely to keep dropping throughout this year before rebounding in 2009.

However, in hard-hit Florida, the housing market will continue to contract even then, predicted Bernard Markstein, the builders group's senior economist for forecasting and analysis.

Economists told the builders that it would take 11 months of sales at the current rate just to sell off the inventory of new houses already on the market.

"There is too much inventory. We're awash in it," said Mark Zandi, the chief economist for Moody's Economy.com.

First, "there is no credit," which is "weighing very heavily on demand," Zandi explained. Burned in the subprime loan crisis, private financial institutions have tightened restrictions on all potential borrowers, and the federal government can't fill the void, he said.

Second, foreclosures are adding to the inventory and "more are on the way," Zandi said. The number of American homeowners who are "under water" --- owing more on their mortgages than their home could be sold for --- is already at 8.8 million and is "headed up," he predicted.

He said it may be the spring of 2009 before the bottom is reached in the housing market, and "that's not when it starts improving, just when it stops eroding."

He said home prices would have to fall between 25 percent and 40 percent by then for that bottom to be reached, depending on other economic elements such how much builders slow down construction of new homes and how many Americans lose their jobs.

"This is a crisis," said Zandi, who also called for Congress to do more.

Jim Glassman, managing director and senior policy strategist with JPMorgan Chase & Co., said the new real estate realities will result in a profound change in the American consumer.

People will begin to "save the old-fashioned way, out of income," he said. Rather than refinancing mortgages to cash in on rising home prices, consumers "will be more like our parents" and slow their spending until it is more in line with income, he predicted.

The Associated Press contributed to this article.