Single-family housing starts are expected to plummet 29.3 percent this year compared to 2006, and to drop another 23.6 percent in 2008, National Association of Home Builders chief economist David Seiders said in a forecast report Thursday.

Seiders expects house values to fall about 10 to 15 percent from the peak of the boom to the low point in the downturn, with further price erosion next year. He said the price declines should ease some housing-affordability problems.

“This year has turned out to be much weaker than I had expected a year ago,” he said, and he blamed the “progressive meltdown of the housing finance system” for the housing market’s unexpected rate of decline.

“The probability of recession has probably increased fairly significantly in a short period of time,” and Seiders said he estimates a 40 percent chance that the economy will sink into recession in the next two quarters.

“We really are right now in a danger zone in terms of overall economic activity. I think it’s fair to say that the overall economy is slowing pretty dramatically in the fourth quarter.”

Single-family housing starts are projected to drop about 53.7 percent from an annual peak of 1.72 million in 2005 to an anticipated low of 796,000 in 2008 before recovering to 885,000 starts in 2009.

Single-family new-home sales peaked at a record 1.28 million in 2005 and are expected to bottom out at 741,000 in 2008, and then to rise to 838,000 in 2009.

New-home sales dropped 18 percent from 2005 to 2006, and are projected to fall 24.4 percent this year compared to last, drop 6.6 percent in 2008 and rise 13.1 in 2009.

And the builders’ group expects single-family sales of previously owned homes to drop 13.3 percent this year compared to 2006, to a total of 4.95 million. That follows a 7.7 percent year-over-year drop in 2006. Seiders also expects a 13.4 percent year-over-year drop in 2008 and an 8.4 percent rise in single-family resale home sales in 2009.

The latest annual forecast for the National Association of Realtors, meanwhile, predicts similar gloom for the real estate industry this year and next, with a 27.6 percent drop in housing starts, a 24.3 percent drop in new-home sales, a 12.5 decline in existing-home sales, a 1.7 percent drop in existing-home prices, and a 1.6 percent drop in new-home prices expected from 2006 to 2007.

The Realtor group forecast also anticipates a 19 percent decline in single-family housing starts, a 12.9 percent decline in new single-family sales, a 0.4 percent rise in existing-home sales and no change in existing-home prices, and a 0.4 percent rise in new-home prices in 2008 compared to 2007.

Seiders’ forecast anticipates that many of these categories will shift from a quarterly decline to a quarterly rise in mid-2008.

Residential fixed investment — which is a measure of construction spending for housing, brokerage commission on home sales and improvements to existing structures — fell 4.6 percent in 2006 compared to the prior year, and is expected to fall 17.3 percent this year and another 17 percent in 2008 before rising 6.5 percent in 2009, according to the NAHB forecast.

Seiders said he expects Federal Reserve officials to further cut the federal funds rate and to stabilize the rate at about 4 percent for much of 2008, with an expected rise to 5 percent in 2009. The Fed’s Open Market Committee this month lowered its target rate for the federal funds rate by 25 basis points, to 4.25 percent.

The inventory of for-sale homes is abnormally high, Seiders said, and it will take time to work through this overhang. He said about 2.1 million vacant homes are on the market for sale — which includes new and resale single-family homes and condos — with as many as 700,000 exceeding normal market conditions.

“As sales begin to improve, this will whittle down excess inventory, allowing the production of new homes to begin moving forward in the latter half of 2008.”

Some markets will take longer to recover, he said, noting that job losses in the Detroit area could stall a housing recovery there, and overheated markets in Florida also could be facing more pain than other markets, as examples.

Jerry Howard, executive vice president and CEO for the builders’ group, said he is encouraged by legislative and regulatory changes that Congress and the Bush administration have worked toward, which seek to ease the foreclosure problem and reform the regulation of the lending industry, government-sponsored entities Fannie Mae and Freddie Mac, and the Federal Housing Administration’s loan programs, among other aims.

NAHB supports a rise in the FHA loan limit for high-cost markets and flexible down-payment requirements to benefit a larger group of prospective buyers, and the group supports H.R. 1427, which relates to reform of Fannie Mae and Freddie Mac.

Seiders said that were it not for problems in the mortgage finance market, the housing downturn would not have been so pronounced.

“It’s pretty clear that a lot of potential buyers have been holding off on home-buying,” he said. “We have actually seen household formation rates looking pretty darn weak in the last four to six quarters.”

Seiders noted that there is an expected wave of mortgages that are due for a reset in rates next year. And while the mortgage finance industry has sought to address this anticipated tide by allowing some subprime borrowers more leeway by temporarily freezing rates or offering an opportunity to refinance to more conventional forms of financing, he said there could be a big problem if such programs do not have the desired effect.

He said that his forecast makes “some key assumptions on the policy side. I’m counting on the Fed to really do whatever it takes to keep the economy out of recession.”

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