Could Housing Slide Trigger Recession?

Merrill Lynch economists are forecasting that housing prices could decline by 5% next year and that the slowdown in the housing market could push the United States toward a recession."The much-vaunted housing market correction, which has finally hit the U.S. economy, has the potential to pull the U.S. to the brink of recession by early 2007," according to Merrill Lynch's global economic team. The economists declared that housing has become "extremely overvalued," by 20% to 40%. "Merrill Lynch expects an outright decline in housing prices of about 5% next year," they said. The economists also warn that new home construction could be in for a prolonged slump. "Judging from past experience, housing starts decline by 50% peak-to-trough, and the correction lasts well over two years," they said.