Analysts predict housing bottom

A handful of economists and analysts predict the slump will bottom out, and home prices will level off by next summer - advice worth listening to.

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By Les Christie, staff writer

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NEW YORK ( -- Alan Greenspan famously declared the worst was over back in November of 2006. And the National Association of Realtors' erstwhile chief economist David Lereah called the bottom a few times, starting in May 2006.

Plenty of other economists and real estate analysts have attempted to do the same - and of course they've all been wrong.

But a consensus seemed to emerge among experts at a housing forum held by Standard & Poor's and the Chicago Mercantile Exchange on Wednesday in New York. Readers will be forgiven for taking this pronouncement with a large grain of salt.

Several panelists, including's chief economist Mark Zandi, Goldman Sachs (GS, Fortune 500) economist Charlie Himmelberg, S&P managing director David Blitzer and S&P senior economist Beth Ann Bovino all agreed that home prices would stabilize sometime during the summer of 2009.

"The bottom of the housing market is coming into view," said Zandi, whose recent book "Financial Shock," examines how the subprime mortgage crisis occurred. "House prices, based on the S&P Case-Shiller index, are down 20% peak-to-trough and I expect them to fall another 5% to 10%."

"The key is housing affordability," Zandi said. "The [price] decline is beginning to restore affordability, which is now near its long-term average. In some places, Boston, Chicago, Denver, Orange County, affordability has been restored and those markets have stabilized."

More declines ahead

One piece of good news noted was home sales volume. The number of homes sold each month has already leveled off nationally, staying within a narrow range nearly every month this year at an annualized rate of about 5.5 million units a year.

Bovino said her forecast for home price decline is slightly more bearish than Zandi's, mostly based on S&P's belief that the country is now in a recession. With the economy struggling, job losses rising and a tough lending environment, she expects prices to fall another 10%.

"We think there will be an overshoot [with prices going beyond their logical bottom]," she said, in part because so many buyers are afraid to get into the market. "Nobody wants to catch a falling knife," she said.

And after prices do bottom out, Himmelberg expects them to remain fairly flat for a year or so.

Everyone on the panel agreed that the government takeover of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) should help the housing market.

"We expect Fannie and Freddie to be more aggressive [in buying loans] over the next few months," said Zandi. "We are at a low point in credit availability right now."

The panelists were careful to couch their optimism with caveats. Zandi, for example, points out that there is a lot of uncertainty about the fate of Fannie and Freddie, in the wake of their government takeover.

There is some speculation that the companies will be downsized by a new administration after the presidential election in November.

"Neither candidate," said S&P managing director David Blitzer, "has decided what they want to say about that." To top of page

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