Economist sees tough year for housing, jobs

LOGAN — While Utah is faring better than most of the rest of the nation in many economic statistics, "housing activity is really in a slump" here and elsewhere across the United States, according to a Freddie Mac executive.

Speaking at Utah State University on Thursday, Frank E. Nothaft, vice president and chief economist at Freddie Mac, said single-family home construction nationwide is at its worst level since 1945. Sales have bottomed out, with one-third of those being foreclosure sales. Mortgage delinquency rates are bad and will worsen. Credit markets are in a "freeze-up."

Consumers are worried and not buying homes or cars because they are "feeling pretty lousy right now" and worried about keeping their jobs, Nothaft told a crowd of about 300 attending his presentation, part of the university's Partners in Business seminar program.

"It's pretty much a depression out there if you're a home builder or a real estate agent looking to sell homes," he said. "Not in every single neighborhood. Some parts of the country are holding up OK. But when you look at the aggregate statistics, which aggregate across all neighborhoods in the U.S., the news is pretty bad."

Many economists are calling the recurrent recession the worst since the Great Depression, but Nothaft stopped short of that. He described the current woes as the "longest and deepest" recession since the early 1980s.

"The recession we're in right now, we're already in it for more than a year. And easily, I think we're going to be in it until mid-year — the mid part of this year — and maybe longer," Nothaft said.

He expects unemployment to continue to rise, from 4.8 percent at the end of 2007 and 7.2 percent at the end of last year to 8.7 percent this December — the worst rate since 1982. "It's going to be a tough year," he said about the jobs outlook.

But Nothaft sees some good in the current economy. Core inflation is down and likely will drop more, allowing the Federal Reserve to be aggressive with its monetary policy, and its federal funds rate likely will remain at 0 percent to .25 percent most of this year, if not the entire year.

Also, although offset by tightening credit standards, interest rates for 30-year mortgages are at their lowest level since 1965. People who can get credit are seeing home prices down 12 percent from the third quarter of 2006 and probably will see them fall at least that much more until 2011 or 2012. And people with home equity are enjoying "a great time to refinance," he said.

"It's going to be a tough adjustment this coming year, but I do think economic recovery will settle in the second half of the year, in part because of a very accommodative, aggressive monetary policy and because of a fiscal stimulus package that's being talked about in Washington right now," Nothaft said.

Unemployment-rate improvements usually lag the official start of recession recovery, and he foresees that happening this time.

"Even if the recovery starts, say, as early as the third quarter, unemployment is going to go up," he said. "It's going to go up (through) the end of the year until the first part of 2010. But I do think the outlook for 2010 is much better. We'll see stabilization in the housing market. We'll see the basis for that being made and ultimately full recovery in housing in 2010."

E-mail: bwallace@desnews.com