Big business: Economy recovering, but housing's a drag

WASHINGTON (CNNMoney.com) -- Big Business economists said Tuesday that the economy is slowly recovering, but that the housing market could put a damper on growth for another year.

"What we've seen today is an economy that's growing, but not growing as fast as we'd like to it to grow, " said Martin Regalia, chief economist for the U.S. Chamber of Commerce, which hosted an economic briefing in Washington. "But the good news is: We are growing."

But the chief economist for real estate website Zillow.com, Stan Humphries, was more dour in his outlook, citing continued weakness in the housing market. He says the housing market hasn't hit bottom yet, and that the slow pace of foreclosures and sales of distressed property will continue through this year and into next.

He said the combination of foreclosures and short sales of houses whose homeowners were underwater on mortgages accounted for about 40% of all sales in March.

Humphries said banks and courts are clearing distressed and foreclosed homes at a slow pace, taking more time to "do due diligence." The extra review is a direct response to last fall's scandal and criticism that banks took "short cuts," leaving some homeowners wrongly homeless.

But that due diligence is prolonging housing pain, Humphries explained.

"You can see there's a problem in the housing market in the foreclosure front," Humphries said. "It's raining hard and there's only a small hole in that bucket to allow foreclosures to come out of."

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Humphries said he doesn't predict a flattening out in housing prices until 2012 at the earliest.

"We don't see a reasonable way to get to flat by the end of this year," he said.

One of the rosiest parts of the recovery is the auto sector, said GM chief economist G. Mustafa Mohatarem. He talked about General Motors' (GM, Fortune 500) Tuesday announcement to invest $2 billion across 17 auto plants in the United States, a move that's expected to save or create 4,200 jobs.

"We're clearly on the recovery path in the auto industry," Mohatarem said.

He said the headwinds are that unemployment remains highest among younger workers, around 16 to 25 year olds. While they're not buying many cars now, their lack of employment now could be key in their future employment and ability to buy a car down the line.

He said the second big problem auto companies see is high oil prices, which can spur consumers to delay auto purchases, as they wait to see how gas prices end up.

He added that the tsunami and earthquake that has sidelined Japanese car companies and parts manufacturers adds an extra level of uncertainty for automakers.