Harvard Study Sees More Tough Times for Housing

Of course, California's housing market is being hit harder than most.

Home slump harder to reverse than usual: Harvard

NEW YORK (Reuters) - Record foreclosures and limited access to credit will make it harder than usual for the U.S. housing market to rebound from this slump, the worst at least since World War Two, according to a Harvard University study on Monday.

A two-year home price drop is eating into housing wealth, curbing consumer spending and slicing away economic growth. This is unlikely to change until potential home buyers are convinced that prices have stopped tumbling, the study found.

The downturn has room to run.

The highest home loan rates in nine months and strict lending standards are keeping buyers on the sidelines, even after aggressive Federal Reserve intervention and a 16 percent national home price slide from the 2006 peak, by some measures.

"Historically, housing markets recover only after the economy has entered a recession and a combination of falling mortgage interest rates and house prices have improved housing affordability," Nicolas P. Retsinas, director of the Joint Center for Housing Studies at Harvard, said in a statement.

"It will take longer this time to rebound given the unusually high levels of foreclosures and constrained credit markets," he said. "The slump in housing markets has not yet run its full course."

Price declines and mortgage defaults are the worst on records dating back to the 1960s and 1970s, the study noted. Job losses and falling prices intensify risk of foreclosure.

The number of homes entering foreclosure nearly doubled to 1.3 million in 2007 from about 660,000 in 2005.

Payment shock after rate resets on some adjustable loans, many made to higher-risk borrowers, has propelled owners into foreclosure. For others in trouble, falling prices leave them with mortgages larger than the home's value, and they are often unable to refinance or sell.

Foreclosures are adding to an already massive supply of unsold homes, which further pressures prices.

"With credit markets in such disarray, the for-sale housing inventory at record levels ... emerging from today's housing slump could take some time," the study found.

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