White House predicts gradual housing drop

WASHINGTON — The high-flying housing market should make a safe landing by gradually losing altitude, the White House suggested Monday.

Housing has been an important source of power for the economy as home sales hit record highs in the past five years running. Low mortgage rates were a factor behind brisk housing activity.

"A gradual slowing of homebuilding appears more likely than a sharp drop because the elevated level of house prices will sustain homebuilding as a profitable enterprise for some time," according to President Bush's annual economic report to Congress.

The direction of the housing market is being closely watched. Most private analysts also are expecting gradual moderation. If the housing market were to collapse, it would pose grave dangers to the country's overall economic health.

House prices, which have risen rapidly in value, also will probably see slower growth this year, Matthew Slaughter, a member of the White House's Council of Economic Advisers, said during a briefing on the report.

Even with a housing slowdown, the economy is expected to log respectable economic growth this year, according to the White House's projections.

The president's report projects that the economy will grow by 3.4 percent as measured from the fourth quarter of last year to the fourth quarter of this year. In 2007, the economy should register another solid year, growing by 3.3 percent, the report said.

The president's report examines economic conditions as well as challenges. These include rising health care costs, the massive strain on federal resources that will come from the looming retirement of millions of baby boomers, and bloated trade and budget deficits.

Democrats contend the administration is short on answers. The report "reveals little about how the president's policies would actually help average families or bring down the deficit," said Sen. Jack Reed, D-R.I.

In other matters, the report said:

—The decline in Americans' personal savings rate "may not be cause for much alarm for retirement preparedness." The personal savings rate last year dropped to its lowest point since the Great Depression. The savings-rate measure doesn't provide a complete picture of households' finances because it does not capture gains from such things as higher real-estate values or financial investments, the White House report and private analysts say.