Lehman sees housing downturn lingering

By Ros Krasny

NEW YORK (Reuters) - The U.S. housing market downturn could linger for years but probably does not pose a major risk to the overall economy, Lehman Brothers' chief global fixed-income strategist said on Monday.

"The subprime saga will not be sufficient to derail the U.S. and world economy," Lehman's Jack Malvey said at the Reuters Investment Summit in New York."

Malvey said the U.S. economy, despite some recent volatility, is in the midst of a "benevolent cycle" and that the current "great moderation" could run into the 2009-2012 period before risks for a U.S. and global downturn pick up.

Still, Malvey said U.S. housing prices could fall into 2009 to 2011 by an average of the mid- to high single-digits, returning to levels last seen in early 2005.

"This issue will continue to shadow markets," he said, adding the prolonged downturn "so far doesn't seem to be the stuff of a significant recession in the making."

Malvey said the subprime mortgage crisis that blew up in February had not completely played out, and that foreclosures "are probably going to accelerate."

"The problem will be for all the homeowners who thought they could roll over into another teaser adjustable rate mortgage" but find that credit standards have been tightened, he said.

An exaggerated view of the potential spillover effect of the subprime saga was one reason that many traders miscalculated on likely Federal Reserve interest rate policy for 2007, Malvey said.