Fitch: Decline May Last to '09.

New York -- The managing director and lead homebuilding analyst at Fitch Ratings, Robert Curran, said during a housing teleconference that few positive signs are showing up in the housing market, which is experiencing a steep cyclical decline, and it appears the contraction will extend itself through 2008 and perhaps into 2009.

The market is seeing a modest recession, he said, resulting in tighter mortgage lending standards. There are record-levels of homes for sale and more people are experiencing foreclosure and walking away from their homes. Homebuilders are seeing above-average cancellation rates and single-family starts have dropped.

"They can't sell an existing home and borrowers can't qualify for a mortgage," said Mr. Curran. "But mortgage rates are still low at just over 6%."

The 14 years leading up to 2005 were positive years for the housing industry, he described. The declines through 2007 were similar to what happened in the late 1980s and early 1990s.

Issues such as affordability, excess supply and poor buyer psychology continue to plague today's current market. If there is a major recession, it would result in a bigger downturn, he said, even though Fitch is forecasting that things will pick up in the second half of 2008, especially with 1.7% in GED growth.

The most pressing problem is excess supply. In the past four months inventories have dropped to around 460,000. Unfortunately, he said, the amount of homes sold continues to be slim. And the amount of new homes for sale is in excess of 500,000. Home prices could fall 5%-8% in 2008.

"Lower mortgage rates and tighter lending standards are a counterbalance for new homebuyers," said Mr. Curran. "There are growing default-related losses. Fannie Mae and Freddie Mac have tightened their standards, as well as the FHA. As delinquencies and defaults rise, it could be a problem for 2008 and 2009.