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Home prices apt to fall much more

A group of 10 economists says that home prices in the United States are only halfway through their fall. A group of 10 economists says that home prices in the United States are only halfway through their fall. (Ted S. Warren/Associated Press)
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Associated Press / June 18, 2008

WASHINGTON - US home prices are only about halfway through their decline and most of the further erosion should occur this year, major bank economists said yesterday.

The 10 economists, including those from Wells Fargo Bank and JPMorgan Chase & Co., also cited the negative overall tone of the economy, with consumer spending curbed, spiking fuel and food prices, tight credit, and relatively high unemployment.

"There are a number of headwinds that consumers are dealing with," said Peter Hooper, chief economist at Deutsche Bank Securities and head of the American Bankers Association's economic advisory committee. "There's plenty for consumers to feel gloomy about."

The group - which also includes economists from Northern Trust Co., SunTrust Banks Inc., PNC Financial Services Group Inc. and Huntington Bancorp - met with Federal Reserve officials Monday.

It expects "sluggish growth, picking up moderately next year," Hooper said. The economy will experience an unprecedented type of recession - the first one without a significant quarterly decline in gross domestic product, he said. That indicates factors other than GDP, such as income and employment levels, are important shapers of recessions.

Additional declines in average US home prices of around 15 percent between now and late 2009 "clearly will be a drag on consumer spending," the engine of economic growth, Hooper said.

The forecast was issued hours after the government reported that wholesale prices in May grew at the fastest pace in six months as energy and food costs zoomed higher.

A Commerce Department report showed the number of new housing projects started in May fell by 3.3 percent to a 975,000 pace - the lowest in 17 years - as builders pulled back further, given the market's deep slump.

About two-thirds of the economists in the bankers' group don't expect the Federal Reserve to begin raising interest rates until next year, while the others believe the central bank could do so this fall amid growing concern over inflation. "There's some scope for the Fed to be patient for a while," Hooper said.

Many economists believe the Fed will hold interest rates steady at 2 percent, a four-year low, when it meets next week.

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