Home Prices Seen as Key to Banking Recovery

With house prices continuing to fall, the banking system will face a "rough period" until the housing market begins to stabilize in the middle of 2009, according to Peter Hooper, chief economist at Deutsche Bank. "The banking system has worked through a substantial portion of losses, but there is a great deal more to come and there is great uncertainty related to how far home prices fall," Mr. Hooper told reporters at an American Bankers Association news conference. Mr. Hooper, who chairs the ABA's economic advisory committee, stressed that house prices are a "critical issue" underlying the financial turmoil and concern about the valuation of financial assets. He said he expects housing prices to begin to level off in the second quarter or the middle of next year. "Things begin to look better at that point," the chief economist said. Meanwhile, more bank economists on the ABA's advisory committee are expecting the economy to dip into a "mild recession" during the second half of this year, Mr. Hooper said. In June, a majority of the economists thought economic growth would be slow but that the United States would avoid a recession. The ABA can be found on the Web at http://www.aba.com.