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WASHINGTON - As sales and prices of new homes recorded their steepest drops in a decade, economists warned the nation's home builders that the sinking sector may not hit bottom for a year.
"Housing is still a long way off from recovery," Nariman Behravesh, chief economist of Global Insight, warned at the Spring Construction Forecast Conference of the National Association of Home Builders.
"You've got to get home buying going, or this thing could spiral downward indefinitely," said David Seiders, chief economist of the NAHB, in urging Congress to enact a temporary tax break at least for first-time home buyers.
Economists at the conference Thursday agreed that prices and housing starts are likely to keep dropping throughout the year before rebounding in 2009 across most of the nation.
"There is too much inventory. We're awash in it," according to Mark Zandi, chief economist for Moody's Economy.com.
In hard-hit Florida, the housing market will continue to contract even after a rebound begins, predicted Bernard Markstein, the builders group's senior economist for forecasting and analysis.
The conference came on the same day that the Commerce Department reported that sales of new homes fell 8.5 percent in March, to a seasonally adjusted annual rate of 526,000 units, and the median price of a home sold last month fell by 13.3 percent compared with a year ago. Both declines are the steepest in more than a decade.
Economists told the builders that it would take 11 months of sales at the current rate just to sell off the inventory of new houses already on the market.
There are several reasons for this backlog, Zandi told the conference.
First, "there is no credit," which is "weighing very heavily on demand," he explained. Burned in the subprime loan crisis, private financial institutions have tightened credit restrictions on all potential borrowers, and the federal government can't fill the void, he said.
Second, foreclosures are adding to the inventory and "more are on the way," Zandi said. The number of U.S. homeowners who are "underwater" -- owing more on their mortgages than their homes could be sold for -- is already at 8.8 million and is headed up, he predicted.
Zandi said it may be the next spring -- a year from now -- before the bottom is reached in the housing market, and "that's not when it starts improving, just when it stops eroding." He said home prices would have to fall between 25 and 40 percent by then for that bottom to be reached, depending on other economic elements such as how much builders slow down construction and how many people lose their jobs.
"This is a crisis," said Zandi, who also called for Congress to do more.
A $300 billion plan to buy up threatened loans to prevent foreclosures has been proposed by Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee. His bill would provide new funds to the Federal Housing Authority to insure the troubled mortgages. In return for the federal guarantee, lenders would reduce the amount of the original debt and ease repayment terms.
Frank said the plan is to stop foreclosures, not prop up falling house prices.
However, the Bush administration voiced its opposition to the measure Thursday.
In a letter to Frank and the committee, Deputy Secretary of Housing and Urban Development Roy Bernardi said the legislation puts taxpayers at risk of bailing out home buyers who borrowed more than they could afford.
Jim Glassman, managing director and senior policy strategist with J.P. Morgan Chase & Co., said the new real estate realities will result in a profound change in the U.S. consumer. People will begin to "save the old-fashioned way, out of income," he said. Rather than refinancing mortgages to cash in on rising home prices, consumers "will be more like our parents," and slow their spending until it is more in line with income, he said.
The Associated Press contributed to this report.