RPT-US housing market slide seen bottoming late 2007-economist

NEW YORK, July 25 (Reuters) - The U.S. housing market should continue to cool off for the remainder of 2007, but some areas will be on a path of recovery by early next year, a leading industry economist said on Wednesday.

David Seiders, chief economist at the National Association of Home Builders, said that while his forecast is a lot weaker than the previous one he gave in late 2006, due primarily to the deterioration of the subprime mortgage market, 2007 will see the worst of the housing market's slump.

"The key reason for the change in our outlook is the unanticipated and sudden turmoil we encountered in the subprime mortgage sector early this year," he said during a teleconference of his mid-year economic forecast.

"We got at least a couple more quarters of contraction in front of us, but there are some ultimate supports for housing demand lying out there, and housing production should do somewhat better in 2008 than in 2007," he said.

Serious problems that have cropped up in other components of the mortgage finance system as well, particularly in the "Alt-A" market for borrowers with slightly better credit, he said.

Seiders said this year the housing market has been affected by the meltdown of the subprime mortgage market, which caters to borrowers with poor credit histories. The subprime crisis has spurred tighter lending standards as delinquencies, defaults and foreclosures on loans rose.

The housing downswing that began for the most part in the latter part of 2006 is in a correction process following an unsustainable housing boom that prevailed from about the middle of 2003 through most of 2005 and in some cases into 2006, he said.

"This is not a housing downswing that's been caused by major increases in interest rates or by a weakening economy as they usual are," he said. "This one really stands out there as a unique experience, both the boom and now the subsequent correction process."

Seiders said the housing market is still weakening to some degree and the market is still dealing with some major problems, namely affordability issues and a sizable inventory overhang, particularly the vacant units on the market, whether they are new or existing.

Seiders forecasts 30-year fixed-rate mortgages to rise to about 6.70 percent in 2008, not far from where it currently stands and the one-year adjustable-rate mortgages to climb to about 5.65 percent.

The fixed-rate mortgage product has again become the dominant mortgage product being used right now, with demand for adjustable-rate mortgages fading, said Seiders.

Single-family housing starts topped out at annual rate of 1.75 million in the first quarter of 2006 and the trough, at about a 1.1 million rate, should emerge in the fourth quarter of 2007. That's about a 37 percent decline on a peak-to-trough basis, and if the bottom is achieved it will be lowest level of single-family housing starts in 10 years, he said.

Seiders said the sustainable single-family housing starts pace level is about 1.5 million, but the market has been been below that level for a full year and will probably not return to a sustainable trend performance for single-family production until probably 2010 or 2011.

"We are looking for a fairly slow climb out of this hole," he said.

On an annual basis single-family starts should be down 23 percent this year and up 2 percent next year, Seiders said.