Don't Expect a Housing Turnaround Anytime Soon

The Mortgage Bankers Association says housing crunch will linger until mid-'08.

ByABC News
February 18, 2009, 3:46 PM

Oct. 17, 2007 — -- The housing market likely won't turn around anytime soon, according to the Mortgage Bankers Association, which released its forecast for the 2008 housing market and the economy in general today. The Washington, D.C.-based group predicts that the housing sector will continue to suffer through the middle of next year, then begin start to turn around, but slowly.

Among the highlights:

"In terms of housing, we expect 2008 sales to be below 2007 levels until late 2008, but given the oversupply of homes in a number of markets, any significant increase in home building is probably years off," said Mortgage Bankers Association's chief economist Doug Duncan.

Despite high energy costs, higher prices for imported goods, uncertainty about taxes and problems in the housing sector, Duncan said that the picture isn't completely grim. "The underlying fundamentals of the economy should be strong enough to get us past this period so that economic growth should return to normal levels by the second half of 2008."

Duncan said the impact of the slump in the housing sector is being offset by growing strength of our trade with the rest of the world (thanks in large part to a weak dollar).

"If the funds rate is reduced another 25 basis points at the October policy meeting, that may be the last move needed to keep the economy on a moderate growth track" he said, regarding future Federal Reserve actions. If economic growth doesn't pick up, Duncan expects the Fed to leave interest rates low and refrain from raising them.

He predicts fixed rate mortgages, currently around 6.4 percent, will rise to 6.6 percent at the start of next year.