By Julie Haviv and Jennifer Ablan
NEW YORK (Reuters) - A rapidly deteriorating U.S. economy will cause home prices to drop by 20 percent peak-to-trough, a leading economist said on Wednesday.
Mark Zandi, chief economist and co-founder of Moody's Economy.com, said he also expects a recession in the first half of this year.
Zandi, speaking at the Reuters Housing Summit in New York, said this is a "significant" change from the Moody's Economy.com outlook published in December, which called for a 13 percent drop.
He expects home sales to hit bottom this spring, housing starts to reach a nadir this summer, and house prices to trough in the spring of 2009.
"Three months ago, I expected the economy to skirt a recession. Now, I expect it to suffer a recession (in the) first half of 2008," he said.
"To be more precise, the economy is contracting. It's been contracting for December, January and probably February," he said. "Another three, four, five months of contraction and that would be a recession."
Zandi expects the Federal Reserve to slash the federal funds rate, currently at 3 percent, by another percentage point this year.
He also said the U.S. central bank "misjudged" the severity of the housing downturn and credit conditions. "They were clearly slow to respond," he said of U.S. policymakers. Continued...
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