It won't be over till housing hits bottom: James Saft

(James Saft is a Reuters columnist. The opinions expressed are his own)

By James Saft

LONDON (Reuters) - The financial crisis won't be over until U.S. house prices stop falling, which in short means it won't be over any time soon.

Despite a long fall that has brought down several major financial institutions and taken the economy as a whole to the brink of recession, housing in the United States is still too expensive relative to incomes, rent and the availability of mortgage money with which to buy it.

And that's before you factor in rising unemployment or oil price inflation that is crimping budgets and making long commutes, and the houses built at the end of those commutes, no longer affordable.

The implications are pretty dire; rising levels of writedowns at banks, more failures of financial firms and lousy economic growth, if any, until six months or so after a base is found.

While the overall disease is a debt bubble, the most debilitating symptom of its unwinding is house price falls.

"It looks to us that at least one half of the peak-to-trough price decline has already occurred and that we should see an outright bottom either late next year or in the first part of 2010," Wachovia economists Mark Vitner and Adam York wrote in a note to clients.

"A reasonable first assumption is that a bigger boom will produce a bigger bust."