On the positive side, Moody's Economy.com chief economist Mark Zandi strongly believes that the bottom in new-home sales is hitting now, the fourth quarter of 2007.

"It's going to be so bad, that it's going to be hard to be even worse in the first quarter of 2008," Zandi said at the National Association of Home Builders 2007 Fall Construction Forecast Wednesday in Washington.

On the down side, this comes from a guy who bought a house in Vero Beach, Fla., in the last year, thinking that he was buying at or near the bottom of the market. Oops.

"I caught the falling knife," Zandi said of his recent home purchase.

Zandi, who admits that the housing situation has gotten worse than he expected, said the bottom in housing starts will come in the second or third quarter of 2008, with prices continuing to fall through 2008, reaching their nadir in the fourth quarter of 2008 or first quarter of 2009. All economists who spoke Wednesday project home prices to decrease, though they were split on how much further prices would fall.

But Zandi is assuming the credit crunch will abate in the third quarter of 2008, and the overall economy will miss falling into recession, though just barely. Other economists on the dais Wednesday suggested that the chances of an economic recession hitting the United States are between 30 and 40 percent, though all said the risks point towards a recession, not away from one.

Zandi hedges his own projection, noting that the current economic volatility ignited by the credit crunch is still smoldering.

"The situation is less stark than it was four to eight weeks ago, but I wouldn't be surprised if the embers sparked and caught fire," Zandi said. "The risk of another round of financial turmoil is real."

Wells Fargo Economics Group senior economist Scott Anderson sees mortgage delinquency rates on the rise, and notes, "things are getting much worse."

"A full-blown credit crunch is still a real risk going forward," Anderson said, pointing out how it is not just more difficult for would-be home buyers to get credit, but also for builders looking to finance building. "It's too early to say we're out of the woods yet on tight liquidity."

National Association of Home Builders chief economist Dave Seiders sees home sales hitting bottom in the first quarter of 2008, with starts stabilizing after sales, likely in the third quarter of 2008, he said Wednesday.

But builders are seeing cancellations on the rise, and Seiders believes rising cancellations go hand-in-hand with credit problems.

"In August and September, where a lot of sales that were set to go to closing, where financing had been arranged, all of a sudden the rules changed on the housing finance side, and a lot of sales were cancelled at the closing table," Seiders said. "We've got another upswing in cancellations, and it's hard to know how far that's going to run."

Builder confidence has fallen off the table. The Housing Market Index, which measures builder sentiment, hit an all-time record low of 18 in October, after setting an all-time high score of 72 in 2005.

"There still feels like there is some downward momentum in what they're thinking," Seiders said, suggesting further declines.

Seiders, along with UBS chief U.S. economist Maury Harris and Daiwa Securities chief economist Michael Moran, believe the Federal Reserve Board will cut the Fed Funds rate two more times this year, down to 4.25 percent by January.

Moran projects, based on the future house price index traded on the Chicago Mercantile Exchange, that housing prices nationally will likely decline 18 percent from their peaks, with the bottom in prices coming in 2010.

Most economists at Wednesday's Forecast conference suggested that demographic trends mean good things for the housing market in the long-term. Population growth, household formations, job growth, and income growth all lead to demand for housing in the future, and should be a driver for the housing industry over time.

In the short-term, consumer spending could take a serious hit due to rising energy prices, a weak dollar, expectations of more housing price cuts, weak demand, and potentially rising unemployment. If consumer spending decreases, economic conditions are sure to deteriorate, as the U.S. economy is driven by consumers.

But consumer confidence in buying homes is often tied to improving home prices. And in 2007 and 2008, home prices, on average, are going down.

"A major reduction in home prices, the likes we haven't seen since the Great Depression, is coming this year," said Wells Fargo's Anderson.

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