Washington The Bush administration's pledge to rescue ailing housing finance giants Fannie Mae and Freddie Mac raises anew questions about just when the nation's dismal housing market will hit bottom.
Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson have suggested over the past year that an end is in sight. But with each prediction, things have grown worse.
"I don't think we get strengthening in the housing market until late 2011 or 2012," said Mark Vitner, senior economist for Wachovia, the nation's fourth largest bank and one that this month hired the No. 2 man from the Treasury Department as its new chief executive officer to shore up its own growing exposure to mortgage debt.
Before bottoming out, prices nationwide should fall 22 percent to 29 percent on average from their peak, according to a report that Wachovia released last Monday.
"I think we're somewhere between halfway and two-thirds of the way through the correction," said Vitner, who closely studies the trends in home prices and home sales nationwide.
Other analysts are only slightly more optimistic.
"My view is that we are two-thirds through the housing downturn, at least as measured by house price declines. The price declines began in late spring 2006 and will more or less come to an end in late spring 2009," said Mark Zandi, chief economist for Moody's Economy.com, a forecaster in West Chester, Pa. "The Fannie-Freddie debacle may push this out into the summer or even fall of 2009."
Paulson announced a series of measures last Sunday that were designed to assure investors that the federal government would do whatever it took to ensure the solvency of Fannie and Freddie, the two government-chartered, shareholder-owned institutions that are vital to the nation's housing market.
By buying or guaranteeing mortgages from commercial lenders, Fannie Mae and Freddie Mac allow lenders to get the loans off their books, thus freeing up more money for lending to home buyers.
In theory, Fannie and Freddie back only the safest of loans. But investors have shown themselves to be increasingly worried that the housing market might sour so much that even those loans will go bad and Fannie Mae and Freddie Mac won't have enough cash in reserve to cover them. That's why the prices of Fannie and Freddie shares have dropped by more than 80 percent during the past year.