Recession not necessarily a fait accompli

Two of the three economists presenting at this week's International Builder's Show in Orlando are projecting no recession at all. From BuilderOnline:

While laying out the most optimistic of the three housing and economic forecasts offered at the International Builders' Show in Orlando today, the National Association of Home Builders chief economist David Seiders acknowledged that while he projects no recession, one may still be likely.

"This easily could spiral downward, the way things feel right now," Seiders said. If recession does happen, prices will fall further, credit standards will erode more, additional buyers will step away from the market, and even financing dollars from banks and investors will decline, Seiders said.

And what is the worst-case scenario? Seiders can not say, but he does predict that after President Bush signs a fiscal and monetary stimulus package into effect, one that includes tax rebates, increasing the conforming loan limit to allow Fannie Mae and Freddie Mac to buy and guarantee larger loans, and Federal Housing Administration reform, that another and more housing-focused stimulus package will be in the offing...

Seiders said the U.S. economy will see two quarters of slow growth in 2008, before getting help from tax rebates and growing more vigorously after the middle of the year..

"We will bottom out this year," Seiders said. "The vast bulk of the housing contraction is behind us."

Nothaft, who projects the federal stimulus package to add two percentage points to gross domestic product growth, and account for all of the positive GDP growth in 2008, is not so sure, noting that the Great Lakes region of the country is already in recession.

"It's possible the overall economy is in recession, but we won't know for a year or two," Nothaft said. Recessions can only be officially called by the National Bureau of Economic Research, and generally aren't visible until they are at least half over, or even later. A recession is defined as two consecutive quarters of negative economic growth.

Berson was the lone pessimist on Wednesday's panel.

"The economy fell into recession beginning in December," he said, before calling the recession, "short and mild."

Berson suggested the fiscal and monetary stimulus packages won't impact the economy until the third quarter of 2008.

Seiders said total housing starts declined 26 percent from 2006 to 2007. He projects starts to stabilize in the third quarter of 2008, but to still be down 22 percent for the year. Seiders also predicts sales to stop declining in the second quarter and show improvement from the second half of the year into 2009.

Nothaft projects 1.05 million starts for 2008, a decline of 20 percent from 2007 levels, he said. Freddie Mac's chief economist also projects sales to be down 10 percent to 15 percent compared to 2007. Nothaft believes home sales will not bottom in 2008. He also said that home values will continue to fall into 2009.

Berson projects new-home starts to stop falling in the first half of 2009 and sales to stop declining in the second half of 2008. Berson also estimates home sale prices will fall an average of 15 percent from their peak in mid-2006, to their nadir in 2009.