Economist: Short-Term Is "Dismal;" 2nd Half May Be Better

If economics is the "dismal science," then Frank Nothaft is living up to his billing as the chief economist at Freddie Mac, at least in the short term. "The only good thing I have is that mortgage rates are at a record low," Mr. Nothaft told MortgageWire at the National Association of Home Builders' convention. But even that bit of good news is problematic, the economist said, because lenders' underwriting requirements are so stringent these days that it is far more difficult to qualify for financing. Still, he told a convention session that he expects a housing recovery to begin in the second half of 2009 and pick up a solid head of steam in 2010. Former Fannie Mae chief economist David Berson also expects sales to stabilize and grow stronger into next year. But Mr. Berson, who now is chief economist and strategist at PMI, Walnut Creek, Calif., also believes house prices will continue to fall. In 97% of the metropolitan statistical areas PMI follows, the probability is that prices will be lower in two years than they are now, he told the convention. "The risk has gone up almost everywhere, and there's a better than 50-50 chance of lower prices in slightly more than half the markets." At the same time, Mr. Berson assured the meeting that this too shall pass. "Eventually, the unsold inventory will get worked off," he said. "I don't want to minimize the problems we're going through now, but ultimately we will get through this period and get back to basic demographic trends."