Highlighting Global Insight's economic outlook for the United States economy, Nigel Gault, the firm's chief United States economist, painted a dreary picture, particularly for the housing market.

Credit markets, and rising unemployment and foreclosures will keep the downturn in home sales, starts, and prices going for several more months, Gault said Tuesday during a Webcast of the company's current economic outlook.

Housing, he said, is key to any overall economic recovery.

"It's very hard to see a recovery getting going without hosing bottoming out," said Gault, who sees "no sustained upturn in the economy until 2009."

The fiscal stimulus of tax rebate checks, the impact of which has all but faded, did manage to prop up consumer spending and GDP this year. Real GDP growth will likely check in at 1.6% for 2008 and will fall off to 1.0% for 2009, Gault said.

"Their impact is now fading, and consumer spending is declining," he said.

Consumer spending, which makes up roughly 70% of GDP, grew 2.8% in 2007 and will likely grow 1.0% in 2008 before declining to just 0.4% growth in 2009.

And a big reason consumer spending is down, other than people's general fear about the state of the economy, is that far fewer people are employed than were just a few years ago. Employment growth, which was a paltry 1.1% in 2007, will decline to zero for 2008 and turn negative to -0.4% growth in 2009, Gault said.

Due to continued weak demand, residential investment will continue decreasing. Residential fixed investment declined 17.9% in 2007, will decline 21.3% in 2008, and will decline by 7.9% in 2009, Gault said.

Total housing starts, as a result, will decline to below 1 million for the first time since World War II, bottoming out in late 2008 or early 2009.

Fewer starts is good news, because inventories of both new and existing homes are at or near all-time highs. The rate of owned but vacant homes hit an all-time high of 2.9% of the housing stock in the first quarter of 2008 and was at 2.8% in the second quarter, said Global Insight housing analyst Patrick Newport.

"There are about 800,000 excess housing units on the market today," Newport said.

With inventories so elevated, prices have been falling in 90 percent of the metro markets in the U.S. and will continue to decline. Banks foreclosing on homes and then trying to sell them at tremendous discounts only adds to price declines, Newport said.

As much as people think prices have already decreased, "prices have another 10-20% [further to fall] before they start turning around," Newport said.

With housing still nowhere near the end of its recessionary rope, the crisis in the financial markets continues. As of June, the financial sector in the U.S. wrote down a total of $300 billion in losses, $250 billion of which was written down by commercial and investment banks.

Combine the lack of confidence in the solvency of Fannie Mae and Freddie Mac, with two further waves of foreclosures expected to hit (the first due to job losses and the second due to resetting balances on interest-only mortgages coming due in 2010-2011), and the outlook for housing is just plain bad. But it could get worse. Signs are pointing to major economic slowdowns or worse in Europe, Japan, and China, Gault said. Other than consumers, the only thing keeping the U.S. economy going is its export growth. If other countries falter, exports will decrease, leaving the U.S. in even worse shape.

"There's no question global growth is faltering," Gault said.

Ethan Butterfield is senior editor, business, at BUILDER magazine.