The Worst May Be Over, Economists Say

Consumers are growing more optimistic about the housing market, and economists concede the worst has likely passed.
By: Marc Hogan: REALTOR® Magazine Online
On Oct. 7, after mortgage applications posted their largest weekly gain since June 2005, former Federal Reserve Chairman Alan Greenspan was quoted as saying, “The worst may well be over.”

A growing number of economists and analysts are beginning to see things his way.

"The point of maximum deterioration in housing activity has probably passed," says Jan Hatzius, chief U.S. economist at Goldman Sachs (GS), in an Oct. 20 report. "The sharp downturn of the past year seems to have brought total housing starts — single-family starts, multi-family starts, and mobile-home shipments — close to the level justified by the underlying demographics."

Peter Kretzmer, a senior economist at Bank of America (BAC), points to the University of Michigan's latest consumer-sentiment report, in which the share of respondents indicating that it was a good time to buy a house jumped to its highest level in 14 months.

Even the bears are slightly more circumspect. In an Oct. 20 note, Richard Berner, chief U.S. economist at Morgan Stanley, says the housing slowdown is far from over, but may not be as bad as everyone expected. "The latest data suggest that the intensity of the housing decline may be fading somewhat, and with it some of the concurrent downward pressure on housing prices," he said. "If so, one of the biggest perceived risks to the U.S. economy may be smaller than feared."