The deepening slump in the U.S.'s housing markets has seriously eroded consumer sentiment and pushed the economy into a mild recession, according to the chief economist for the National Association of Home Builders (NAHB).
"The worse-than-anticipated housing downturn, combined with systematic weakening of the labor market and rapidly rising energy and food prices, has taken a heavy toll on American consumers," said NAHB's David Seiders. "It's now clear that we have entered what we anticipate will be a mild recession, running through the first half of this year, and there are substantial downside risks to this economic scenario."
To guard against a longer and deeper downturn, Seiders said that the U.S. Congress should take immediate steps to stimulate the economy through actions specifically targeted at improving the ailing housing market--such as a temporary home buyer tax credit, modernization of the Federal Housing Administration and oversight reform for the housing-related government sponsored enterprises.
"Stopping the downward trend in housing prices is key to bolstering consumer confidence as well as mortgage credit quality, and a temporary home buyer tax credit is the best way to do that," he noted.
Given the ongoing erosion in housing finance markets and buyer demand, Seiders has adjusted NAHB's official housing forecast to indicate continuing downward movement in housing starts through the end of 2008, bringing the decline for the year to 30%. A month ago, Seiders expected housing starts to bottom out in the third quarter, with a 27% decline for 2008.
"This change in our forecast indicates that, barring immediate action by Congress to stimulate housing and the economy, the housing sector will continue to be a serious drag on economic growth until the beginning of 2009," Seiders said. "Stimulus bills recently passed in the Senate and the House Ways and Means Committee are welcome steps in the right direction. This is one instance where prompt and appropriate efforts by the nation's lawmakers could make a significant difference in limiting the depth and duration of the economic downturn."