Housing, Growth and the Economy: What Will 2008 Hold?

New York–How much longer can economic growth continue? Thanks to the housing decline and other economic threats, it’s unclear, The New York Times reported Wednesday.Housing prices could drop, consumers would stop spending and declining business would prompt companies to cut jobs–that’s the negative 2008 scenario many economists feel is most possible, according to the Times.In 2007, job growth slowed and inflation concern increased–but consumer spending stayed solid and unemployment remained level.Yet housing, which posed a serious threat to the economy last year, is an ongoing fear. Currently 2.1 million homes–2.6 percent of the U.S. housing inventory–remain vacant and on the market, which is more than the housing recessions of the 1980s and 1990s.Economists forecast that the housing supply won’t drop to normal levels until home prices fall nationally by at least 15 percent from their 2006 high points. Prices thus far have fallen less than 5 percent according to the Standard & Poor’s Case-Shiller home price index.Although in 2007 mortgage market issues mostly involved subprime loans given to homeowners with poor credit, default rates are rising among homeowners with good credit. In November, 6.6 percent of the less-risky Alt-A loans were delinquent by 60 days or more, in foreclosure or repossessed. In August, only 4.3 percent of Alt-A home loans were in similar condition.Collectively, about 40 percent of all mortgages issues in 2006 were either subprime or Alt-A types.National housing prices should drop by 5 to 10 percent in 2008 before reaching their lowest point, according to many economists; concern that such a fall could hurt consumer spending and, as a result, the overall economy, remains high. Consumer spending comprises 70 percent of all economic activity.However, future interest rate cuts from the Fed, prompted by economic slowdowns and potential drops in oil prices, and increased exports–which have been prompted by growth in areas such as China, India and Europe–could help bolster the U.S. economy despite ongoing real estate issues, the Times says.