Residential property prices have troughed in US, many economists believe

Residential property prices in the US are nearing the end of a three-year slump and should rise in 2010, but the overall economy can rebound even if the housing market does not, according to economists.

However, stability in the real estate market does not mean recovery as record high foreclosures, a sizable pool of bank-owned property, steep unemployment and wage cuts could lead to a rebound, a poll of leading economist by Reuters concludes.

House prices will fall just 3% more before stabilizing, giving an overall fall of 33% from their peak in the middle of  2006, based on median forecasts, it shows.

About a third of economist polled, 13 out of the 41 that took part, said that they believe a trough has already been reached.

While 27 of them said the bottom would be hit within a year. Just one said it would take up to two years.

‘We believe that April of this year marked the trough for home prices, though the potential for a significant increase is limited,’ said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.

‘A lack of credit availability, stressed consumer balance sheets and growing unemployment are not signs that suggest an environment of substantially rising home prices,’ added LeBas.

The poll also found that 29 of 39 economists said a housing price rebound is not needed to end to the economic slide but it would be a prerequisite for a strong recovery.

‘That’s not in the cards right now,’ said Adolfo Laurenti, deputy chief economist at Mesirow Financial in Chicago.

‘Broader economic recovery cannot be achieved without a healthy financial system and a household sector confident in their financial future, including housing wealth,’ said Robert Denk, assistant vice president of forecasting and analysis at the National Association of Home Builders.

But they do believe that financial system bailouts and economic stimulus programmes, including the $8,000 federal first-time home buyer tax credit that ends next month, have helped put a floor under the fragile housing market.