U.S. corporate economists meeting in Washington Tuesday heard predictions that this will be a down year for home prices. Worries about the housing market were among the reasons why stocks on Wall Street dropped more 240 points for the second largest one-day decline this year. VOA's Barry Wood has more.
Two housing experts from the Boston-based economic forecasting firm Global Insights say the U.S. housing sector remains depressed and has not yet hit a cyclical bottom. Forecaster Brian Bethune, the firm's director of financial economics, told the National Association of Business Economics that a weak housing market is a risk to economic growth.
"The housing industry even under our baseline [scenario] which is reasonably optimistic that we're going to work through this problem suggests that it is going to continue to be a drag [on economic growth]," said Brian Bethune.
The firm's principal forecaster of housing price trends, James Diffley, says the prices of existing homes are expected to decline 16 percent this year in California, which has been one of the country's strongest housing markets.
"Other double digit declines? Well, the usual suspects [after a boom] among states," said James Diffley. "Most of these [declines] are 10 to 12 percent decline [in prices]: Arizona, Hawaii, Florida, Massachusetts, Nevada, New Jersey and Virginia, largely northern Virginia."
After years of double digit price rises, home prices leveled off in 2006 and now are actually declining. New home construction is also depressed with housing starts down for 11 consecutive months.
The weak housing market occurs at a time of rising problems in what is called the subprime mortgage market. Over the past five years mortgage lenders have greatly boosted loans to less credit worthy home buyers. About 13 percent of subprime borrowers are currently behind in their monthly payments. Foreclosures have risen to an all time high.
Concerns about problems for mortgage lenders and the falling prices of real estate have contributed to a 240-point decline on the New York Stock Exchange Tuesday and the weakening of the U.S. dollar.
Most analyst say despite weak housing the U.S. economy will avoid recession this year. The Federal Reserve anticipates growth of from two to 2.5 percent. Many corporate economists are less optimistic.