Anderson Report: More Housing Carnage to Come, but No Recession

The closely watched quarterly Anderson Report, to be released today by UCLA, forecasts the housing market will likely decline even further as the subprime mortgage market continues to implode. The report does not, however, foresee a recession. Rising delinquencies and defaults have prompted a tightening of credit standards that should shrink the number of first-time buyers and make it harder for subprime borrowers to refinance. "For all practical purposes, the subprime market is in the process of shutting down," wrote senior economist David Shulman in the report. Shulman forecasts that housing starts will reach 1.33 million units this year, down from an earlier forecast of 1.48 million units. "For a housing market that has already witnessed housing starts decline by 36%, this is not good news," he wrote. The report nevertheless forecasts a softening of the economy rather than a full-scale recession. GDP growth is projected in the 1.7-2.5% range for the first three quarters of 2007 and should average 3.25% in 2008. The report projects unemployment will reach 5% in Q3, up from February's 4.5%, before beginning a decline.

Sources: Business Week, LA Times
Commentary: New Home Sales Drop for Second Month Straight • New Century Financial on Brink of Bankruptcy
Stocks/ETFs to watch: Lennar Corp. (LEN), KB Home (KBH), D.R. Horton Inc. (DHI), Pulte Homes Inc. (PHM), Toll Brothers Inc. (TOL), New Century Financial Corp. (NEWC.PK), Accredited Home Lenders (LEND), Novastar Financial (NFI), Fremont General (FMT), Fieldstone (FICC). ETFs: streetTRACKS SPDR Homebuilders ETF (XHB), iShares Dow Jones US Home Construction (ITB)
Related: The UCLA Anderson Forecast

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