Outlook good, but analysts warn of housing downturn

by Alan Zibel Associated Press Apr. 23, 2010 12:00 AM

WASHINGTON - The economy is improving, with home sales up, jobless claims down and inflation tame. Yet there are concerns the rebound won't get much juice from the housing market, which is fueled by government tax breaks.

Sales of previously occupied homes grew by nearly 7 percent last month, more than expected, the National Association of Realtors said Thursday. It was a welcome sign after three months of decline, and a solid kickoff to what's expected to be a strong spring selling season.

Nevertheless, many analysts caution that the housing rebound could fade in the second half of the year. They predict a flood of low-priced foreclosures will push down prices.

Another threat to the U.S. economic recovery is fallout from the Greek debt crisis.

"The recovery looks like it will continue," said Jay Feldman of Credit Suisse. "We don't see another recession."

Underscoring that view, the government reported Thursday that new claims for unemployment benefits fell by 24,000 to a seasonally adjusted 456,000, the Labor Department said.

And in a separate report, the government said wholesale prices rose 0.7 percent last month. Excluding volatile food and energy costs, prices rose only 0.1 percent, which means there is little risk of inflation.

Speaking in lower Manhattan, President Barack Obama said the economy is recovering in "the fastest turnaround in growth in nearly three decades."

The Obama administration says its homebuyer tax credits and lender incentives have helped stop the housing freefall.

Critics contend the government shouldn't be providing a subsidy to buyers who would have acted anyway, and the government's foreclosure prevention effort hasn't made a dent.

Home prices could fall another 10 percent to 20 percent, warns Dean Baker, co-director of the Center for Economic and Policy Research, a liberal Washington think-tank.

A government index of home prices, also released Thursday, declined 0.2 percent in February, the third-consecutive monthly drop. Nationally, the median sales price in March was $170,700, nearly unchanged from a year earlier, the National Association of Realtors said.

Nationally, sales are up 18 percent from their low in early 2009, but are down 26 percent from their peak in fall 2005.

Outlook good, but analysts warn of housing downturn