Steep drop in home prices may help economy
The bottom should be hit faster, experts say. But the U.S. may have to lean on other sectors for a recovery.
washington -- Nearly two years into a massive housing decline that has resulted in hundreds of thousands of foreclosures, frozen credit markets and dragged the nation's economy toward recession, many Americans hope the end is near.
Most economists believe the worst is yet to come.
"I see absolutely no signs of a bottoming, either nationally or in the regions," said Patrick Newport, who tracks the housing market for Global Insight, an economic forecasting firm in Lexington, Mass.
Elsewhere in the economy, some analysts find encouraging signs. Last month's gross domestic product numbers were a bit better than expected, while the consumer price index has risen relatively little recently, especially considering the huge price increases in oil, food and many other commodities. And the financial crisis that paralyzed credit markets may have begun to ease.
If the country is to avoid a full-scale recession, however, as some analysts are beginning to consider possible, the economy is apparently going to have to pull itself back from the brink without help from the housing industry.
"The housing correction is still going to be with us this time next year," said Celia Chen, a housing economist at Moody's Economy.com in West Chester, Pa.
"The slowdown we've seen in the U.S. economy since late last year appears to be directly linked to the housing crisis and the self-reinforcing cycle of defaults and foreclosures, putting more downward pressure on the housing market and leading to yet more defaults and foreclosures," Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., said in a speech Friday. "We need to find better ways to help struggling homeowners."
When it comes to housing, the optimists are those who see the near free fall in home prices as encouraging: It may at least shorten the economic agony.
"Because the prices are going down so fast, we'll be hitting the stabilization point sooner," said Lawrence Yun, chief economist at the National Assn. of Realtors.
On Friday, the Commerce Department reported that housing construction rose 8.2% in April, the biggest increase in more than two years, but the gain was the result of a surge in new apartment buildings, while single-family home starts kept dropping. Demand for rental units typically rises when homeownership becomes more difficult.
And some analysts think the April gains were an anomaly.
