Housing, Mortgage Markets Continue to Look Bleak

The worst may be yet to come for the U.S. housing market, according to many economists who have been watching the extended slide.

A 30-year mortgage rate jump by half a percent to 6.69 percent over the past six weeks is putting a crimp on borrowers with the best credit, just as a crackdown in subprime lending standards limits the pool of qualified buyers.

The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, the National Association of Realtors reported.

“We’re talking about a two- to three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence,” said Mark Kiesel, executive vice president of Pacific Investment Management Co., which manages $668 billion in bond funds.

“Eventually, it will take the stock market and corporate profit.”

Confidence among U.S. home builders fell in June to the lowest since 1991, according to the National Association of Home Builders/Wells Fargo index released this week.

In May, housing starts declined for the first time in four months, the U.S. Commerce Department reported. New-home sales will decline 33 percent from 2005’s peak to the end of this year, according to the Realtors, exceeding the 25 percent three-year drop in 1991 that sparked a recession.

“It’s not just a housing recession anymore; it looks more and more like an economic recession,” said Nouriel Roubini, a Clinton Treasury Department director and economic adviser who now runs Roubini Global Economics.

The picture looks considerably different in the Texas housing market, where the home market is solid and prices continue to rise. But many other cities are seeing sharp drop in home sales.

There are some important dissenters to the gloomy outlook.

Treasury Secretary Henry Paulson acknowledged last week that the housing downturn “has been a drag on the economy.”

But he added: “I do believe that we are at or near the bottom.”

And Bank of America Corp. CEO Kenneth Lewis declared that the housing slump is almost over.

“The drag stops in the next few months,” Lewis said, speaking as head of a major mortgage lender. “We do not see a recession. Because that drag stops, you’ll see the economy begin to pick up in the third and fourth quarters.”

But the pain is real and widespread.

Home building stocks are down 20 percent this year after falling 20 percent in 2006, according to the S & P’s Homebuilding Index of 16 companies.

Before last year, the index had gained sixfold in five years.

“There isn’t a recovery about to happen,” said Ara Hovnanian, CEO of home builder Hovnanian Enterprises Inc. The company’s share price has fallen 38 percent in the past year.

Goldman Sachs Group Inc., the world’s biggest securities firm, and Bear Stearns Cos., the largest underwriter of mortgage-backed securities, have blamed rising foreclosures for their falling profits.

In all, bad credit mortgages, given to people with bad or limited credit histories, account for about $800 billion of that market.

“I continue to believe that we haven’t seen the bottom in the bad credit mortgage market,” Viniar said in a June 14 conference call.

“There will be more pain felt by people as that works through the system.”

Rising mortgage rates are prolonging the pain for the housing industry and for buyers.

The average U.S. rate for a 30-year fixed mortgage was 6.69 percent last week, up from 6.15 percent at the beginning of May, Freddie Mac said.

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