Former Federal Reserve Chairman Alan Greenspan said the drop in U.S. home prices will probably end ``well before'' early next year as the number of houses on the market diminishes, aiding an economic rebound.

``It will not be until early 2009 that we will get close to having eliminated most of this'' home inventory, Greenspan told a conference in Tokyo today sponsored by Deutsche Bank AG and co-hosted by Bloomberg LP. ``But it is very likely that home prices will stabilize well before that.''

Greenspan added that the extent of damage stemming from the collapse of the subprime-mortgage market won't be known for months. He described the credit crisis as the worst in 50 years, echoing the assessment of International Monetary Fund economists.

``You won't see asset markets recover until housing prices stabilize,'' said Glenn Maguire, chief Asia-Pacific economist for Societe Generale SA in Hong Kong. ``If Greenspan is correct, you'll see weakness in the economy through 2008.''

The yield on the 10-year Treasury note rose 2 basis points to 3.56 percent as of 4:03 p.m. in New York, according to bond broker Cantor Fitzgerald LP.

Greenspan's successor, Ben S. Bernanke, and other Fed officials have highlighted declining home prices as a major economic risk that may further hurt household wealth and consumer spending.

`Slow, Hesitant Recovery'

``Once the markets start to stabilize, especially if the real economies don't go into a severe recession,'' then ``we can expect a recovery to begin to take place,'' Greenspan, 82, said via satellite from Washington. ``It will be slow, it will be hesitant.''

The health of the U.S. housing market is tied to broader financial markets that rely on bundling mortgages to sell as securities, Greenspan said. The median price of an existing single-family home dropped 8.7 percent in February from a year earlier, the most in four decades of record keeping, according to the Chicago-based National Association of Realtors.....

The U.S. economy will probably emerge from a recession by the time the successor to President George W. Bush is sworn into office next January, former U.S. Treasury Secretary Lawrence Summers said today.

``There is a reasonable chance that from a financial market, Wall Street perspective, the worst has passed,'' Summers said in a speech at the Harvard Club of New York. ``It is slightly more likely than not that, in a technical sense, the recession will have ended when the next president is inaugurated.''

The Bush administration and U.S. lawmakers are trying to avert a recession prompted by subprime-mortgage defaults and the most severe housing slump since the Great Depression. The global economy, beset by diminished lending and mounting losses at financial institutions, faces a 25 percent chance of falling into a recession, the International Monetary Fund said today.

Summers, a professor at Harvard University, reiterated his view that the economy is already shrinking.

``It is overwhelmingly likely that we are in recession, and if we are not currently in a recession, we're certainly in something that feels a great deal like a recession,'' he said. ``From the prospect of Main Street and the real economy, I think there is a very large amount of pain left to be felt.''

Foreclosures jumped 60 percent in February after rising to a record rate in the fourth quarter of 2007. Declining housing prices and reduced access to credit threaten to tip the economy into its first recession since 2001.....

.....Even when house prices eventually stop falling, they will not suddenly soar. After years of tapping rising housing wealth to finance their consumption, Americans will need to build wealth the old fashioned way, by saving more. At 0.3%, the household saving rate is above its all-time nadir, but not by a lot (see chart 2).

No one knows by how much, or for how long, America's economy will be weighed down. The IMF's gloom is based in part on its reading of history. An analysis by the fund of post-war housing busts in rich countries, written in 2003, suggests that crashes typically last about four years and are often accompanied by banking crises. Economies end up 8% smaller, on average, than they would have been had they carried on growing at pre-crunch rates. Perhaps this time will be different, and the hangover will soon be gone. But given the scale of America's housing binge and of the financial crisis the bust has spawned, that seems unlikely.

SOUNDING more like a cartographer than a central banker, Ben Bernanke this week showed off the Federal Reserve's latest gizmo for tracking America's property bust: a series of maps that colour-code price declines, foreclosures and other gauges of housing distress for every county in the country. The Fed chairman's goal was to show graphically that falling prices meant more foreclosures, and he went on to urge lenders to write down the principal on troubled loans where the house is worth less than the value of the mortgage. But the jazzy design of his maps—where hotter colours imply more trouble—also makes a starker point. The pain of America's housing bust varies enormously by region. Hardest hit have been the “bubble states”—California, Nevada and Florida, as well as parts of the industrial Midwest. The biggest uncertainty hanging over the economy is how red will things get.

The answer is not simple. For a start, it is hard to be sure just how much house prices have fallen. America has several house-price indices and they tell different stories. Widely cited, but least useful, are monthly figures showing median home prices produced by the National Association of Realtors (NAR). These indicate that median prices are down some 13% from their peak, but since these averages do not adjust for the mix of homes changing hands, which fluctuates from month to month, they are inevitably distorted.

Mr Bernanke's maps use figures from the Office of Federal Housing Enterprise Oversight (OFHEO). Its statistics have broad geographic reach and track repeat sales of the same house. The monthly national index suggests average prices have fallen only 3% from a peak in April 2007, and the quarterly figures are still positive (see left-hand chart). But OFHEO's figures include only houses financed by mortgages backed by the government-sponsored giants, Fannie Mae and Freddie Mac. By excluding subprime and jumbo loans, they leave out the top and bottom of the market—where prices rose fastest during the bubble and where the mortgage mess was most severe. Thus OFHEO's figures probably understate the scale of the housing mess, particularly in states such as California and Florida. Another set of indices, developed by Robert Shiller and Karl Case and produced by Standard & Poor's (S&P), a rating agency, includes all types of houses and, not surprisingly, show house prices rising faster during the boom and falling faster now. As of the fourth quarter of 2007, the S&P/Case-Shiller national index was down 10% from its peak, and an index of ten large cities had fallen by almost 16% by February. Although the Case-Shiller figures are not perfect—they miss many rural areas—they are a better gauge of price declines in big cities.

Assessing how much further house prices are likely to fall gets even trickier. One route is to look at market expectations: investors expect a further 20% drop, judging by the prices of futures contracts linked to the Case-Shiller 10 city index. But the futures market is small and illiquid and may overstate the possible declines....

The way out of the worst U.S. housing slump since the 1930s goes through Angel Gutierrez.

Gutierrez buys bad mortgages a dozen at a time for a fraction of their face value from lenders overwhelmed by the highest number of defaults in 23 years. When he goes door to door to negotiate lower payments for homeowners or pay them to move so he can sell the house, he's speeding up the recovery by establishing a price for the homes and flushing out the least reliable borrowers.

``You buy the mortgage for pennies on the dollar, carry the big stick, tell the homeowner how it's going to be, then double your money very easily,'' Gutierrez said.

Gutierrez and his wife Brenda, based in San Diego, are a two- person shop in an industry that is attracting deep-pocketed investors such as BlackRock Inc., which manages $1.36 trillion in assets. While Gutierrez said he can buy up to $300,000 of bad loans with his own money and has funding sources for about $1 million, New York-based BlackRock plans to raise $2 billion to invest in discount mortgages.....

May 27 (Bloomberg) -- Karl Case, co-founder of a home-price index that bears his name, said more auctions of foreclosed properties will hasten the reduction of inventories from record levels and may lead to a faster housing recovery.

``I think we're going to see some signs of life in the next few months,'' Case, an economics professor at Wellesley College in Wellesley, Massachusetts, said in an interview with Bloomberg Radio. ``The market is beginning to clear somewhat. There is some good news in this.''

Home prices in 20 U.S. metropolitan areas fell in March from a year earlier by 14.4 percent, the most on record, according to the S&P/Case-Shiller home-price index released today. The year-on-year gauge has fallen every month since January 2007, as the U.S. housing market undergoes its worst slump in a quarter century.

Case said the quickening pace of home-price declines reflected mounting auction sales along with traditional transactions. ``Banks don't wait around,'' he said. ``They put it on the market and get rid of it. That means prices adjust more quickly,'' and it ``clears the inventory out faster.''

The slide in prices may already be contributing to a recovery in demand in some areas. Sales in the San Francisco region jumped 29 percent in April from the previous month, the biggest March-to-April gain in at least 20 years, according to DataQuick Information Systems in San Diego. The median price was $518,000, down 22 percent from the $655,000 peak in June and July 2007, the real estate data company said.....

For the last few years, I have been an evangelist for renting.

I’ve told my sister-in-law and her husband that they would be crazy to abandon their reasonably priced one-bedroom rental in Brooklyn. When two of my colleagues were moving to Los Angeles, I e-mailed them a spreadsheet that helped persuade them not to buy a house there. That same spreadsheet was the basis for an article in 2005, when I argued that “renting has become a surprisingly smart option.” Last spring — like any good evangelist, comfortable with repetition — I wrote a similar article.

The case for renting has been simple enough. House prices rose so high in the first half of this decade that you could often get more for your money by renting. You could also avoid having a large part of your net worth tied up in a speculative bubble.

All this time, I have been a renter myself, first in the New York suburbs and then in Manhattan. But my wife and I will be moving to Washington this summer. And the housing market has, obviously, changed quite a bit since our last move in 2005. Nationwide, prices fell 14 percent from early 2007 to early this year, as Standard & Poor’s reported Tuesday. Home prices almost certainly still have a way to fall, but they’re now well below their peak.

So my wife and I began our search with open minds, willing to consider renting or buying. We ended our search by signing a contract to buy a house.

This is the story of my conversion.....

Lenders stung by the housing bust are slashing prices dramatically to rid themselves of an unprecedented number of foreclosed properties, sparking bidding wars in some places that harken back to the market's go-go years and may signal the bottom is near....

Every time a housing statistic emits a faint heartbeat -- last week's 6.3 percent increase in the April pending home sales index, for example -- there's a flurry of pronouncements that the residential real estate market has bottomed.

Hope springs eternal. Housing has been down so long it looks like up, especially with the graph turned upside down.

New and existing home sales peaked in July and September of 2005, respectively. It took a while for homebuilders to catch the drift: Starts didn't top out until January 2006, leaving a huge inventory of unsold homes in their wake.

Single-family starts, which are the most sensitive to changes in interest rates, are down 63 percent from the January 2006 peak, easily topping the 38 percent peak-to-trough decline in 1973-1975 and 57 percent 1984-1991 dive, and vying for first place with the 65 percent plunge in 1977-1981.

No wonder homebuilders are glum. In a departure from normal practices, the National Association of Homebuilders elected to release its monthly builder survey to the media via conference call on Monday. I received so many advance e-mail alerts I was starting to wonder if the index had sunk to zero in June, and the NAHB wanted to soften the blow.....

Rising mortgage rates are driving up the cost of buying a house even as prices fall, making property more expensive across the U.S., according to a new study by Zillow.com, an online provider of home valuations.

Monthly payments on 30-year fixed mortgages are 6 percent to 10 percent higher in 41 of the top U.S. housing markets than they were two months ago. First-quarter prices have declined from a year earlier in 88 percent of those areas, Zillow said.

``We're going to need about a 30 percent decline in house prices if you are going to keep payments stable,'' said Morris Davis, a former senior economist with the Federal Reserve and now a real estate professor at the University of Wisconsin-Madison's School of Business.

Seven Federal Reserve benchmark cuts since September have failed to lower mortgage rates as banks have curtailed lending after taking writedowns or credit losses of more than $400 billion from investments in mortgages. Rates for 30-year fixed-rate home loans were about 6.3 percent when the Fed first reduced its target federal funds rate nine months ago. They're now just under 6.45 percent, data from Bankrate.com show.....

Doug Gylfe still can't afford to buy a home in Torrance, Calif., despite a 23 percent drop in prices. And Congress isn't helping.

That's the dilemma this week for the nation's lawmakers and millions of Americans who are priced out of homeownership: any rescue policy to stem foreclosures could artificially prop up home prices and perpetuate the affordability crisis in many major cities coast to coast.

"In spite of the downturn in the housing market...affordability continues to be the No. 1 housing challenge," said Rachel Drew, research analyst at Harvard University's Joint Center for Housing Studies.....

The U.S. housing crisis may accomplish what years of parental hectoring couldn't: Turn Americans from spenders into savers.

Spending will fall because homeowners can no longer use rising real estate values to borrow cash -- $837.5 billion in 2006, according to a report by former Federal Reserve Chairman Alan Greenspan and senior Fed economist James Kennedy. With mortgage lenders requiring down payments of 20 percent, the average household, which puts away less than 1 percent of after- tax pay, will have to save 10 percent for 10 years to buy a home.

The housing market shaved almost 1.6 percent off gross domestic product growth in the first quarter and cut in half the growth rate of consumer spending, which accounts for more than two-thirds of the economy, said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania.

``The loss of housing wealth is the difference between a recessionary economy and a growing economy,'' said Zandi, an adviser to presumptive Republican presidential nominee Senator John McCain. ``Consumers have powered the global economy for the past 25 years. For the foreseeable future, maybe the next 25 years, the savings rate will move higher.''

The worst housing crisis in at least a quarter century still has a long way to go, Zandi said. It will take until 2015 for the median home price to return to its July 2006 peak of $230,200, while home sales and residential construction will never again reach the record highs of 2005 and 2006, he said.....

California led the U.S. into the worst housing recession since the 1930s. Now the most populous state may be the first to find the bottom.

In Stockton, the U.S. metro area with the highest foreclosure rate, home sales more than doubled in the second quarter after prices fell by an average 37 percent, said PMZ Real Estate Corp., the area's largest broker. Across the state, sales rose for three consecutive months starting in April after 30 straight months of declines, the California Association of Realtors said. About 40 percent of those transactions were foreclosure sales, DataQuick Information Systems reported.

``California is having a wrenching decline in wealth, but this is a cathartic event that will lay the foundation for a recovery,'' said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania, in an interview. ``This signals the beginning of the end.''

Almost $1.3 trillion of homeowner equity was lost in California since home prices peaked in December 2005, Zandi said. Discounts of as much as 50 percent will extend into 2010, helping clear a glut of foreclosures and leading to a more balanced housing market, said Ryan Ratcliff, an economist at the Anderson Forecast at the University of California in Los Angeles, and Christopher Thornberg, principal of Beacon Economics LLC in Los Angeles.

``Half off in a decent neighborhood is close to the bottom,'' said Bill Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co., manager of the world's biggest bond fund. Property markdowns of 30 percent to 40 percent give the market ``price illumination if not sunshine,'' he said.....