Washington, DC, January 25, 2007--The housing slump is expected to bottom out in 2007, but still be a drag on consumer spending, while business investment stays robust and corporate profit growth slows, congressional analysts said on Wednesday.
Largely in line with private economists' forecasts, the Congressional Budget Office predicted that prices for houses will register a small decline during 2007, stabilize later in the year and possibly edge up in 2008.
A reduced housing inventory "will encourage a mild rebound in homebuilding during the second half of this year," the CBO said, cautioning that the housing outlook remains uncertain.
The U.S. housing market boomed from early 2003 to the end of 2005, making many Americans feel house-rich and adding to the nation's overall economic growth.
"The housing boom directly affected other industries, such as appliance manufacturing, and indirectly strengthened consumer spending by boosting household wealth," CBO said.
Then last year, home price inflation slowed markedly and there was a sharp drop-off in construction activity that "severely undercut economic growth, particularly during the second half of 2006," said the Congress' budget analysis unit.
Slower growth in housing wealth will dampen growth in consumer spending this year relative to last year, it said.
"Some areas of the country will be more adversely affected by the changes in housing wealth, but the overall effects on the economy are likely to be mild," said the CBO.
Business investment and net exports have helped prevent the housing slump from pushing the economy into recession and are expected to continue at strong levels, the CBO said.
"Corporations in general should be able to finance their additional investment needs relatively easily because profits are high," it said.
Corporate economic profits as a share of the nation's overall economic output hit a 40-year peak in 2006.
Slower economic growth in the last half of 2006 and early 2007 "is likely to hold down growth in profits this year, although their level will probably remain high," it said.
