AEI Sees No Collapse Imminent for Housing.

Washington -- Despite a record number of foreclosures, housing price declines have been small and will remain so, according to a new paper released here last week by the American Enterprise Institute.

Cushioned by such other "fundamental factors" as employment growth and reductions in the housing supply, prices on average will slide by only 4.5% under the study's worst case scenario, said one of the study's three authors. Only 11 states will see prices drop by more than 6% by the end of 2009, he predicted.

"Foreclosures and home prices have negative effects on each other over time, but this does not imply a vicious cycle of housing price collapse," said author Charles Calomiris, a professor at Columbia University's business school and a visiting scholar at AEI,

"Our models predict that as foreclosures continue to climb in many states, house prices will remain flat or decline in those states, but prices will not collapse."

Peter Wallison, who heads financial policy studies at the conservative think tank, said that in light of the new research, federal policy makers may want to rethink proposals for a bailout of struggling home owners.

"If the effect of foreclosures on home prices is not substantial," Mr. Wallison said, "there is a good deal less reason for political Washington to be pressing for expensive government programs to prevent foreclosures."

But economist Mark Zandi of Moody's Economy.com argued that the study is flawed, and maintained that the impact of repossessions is "quite significant," especially on low-income households.