U.S. role in housing market, say economists, makes it harder to predict end of crisis

The housing downturn that began in 2005, 2006, or 2007, depending on location, has tested the mettle of the economists whose job it is to figure out when and how the crisis will end.

Some economists argue, and with considerable justification, that government interference in the real estate market has made predicting the date of recovery from difficult to impossible.

That government interference manifested itself primarily in the Federal Reserve's purchase of mortgages from Fannie Mae and Freddie Mac, which affected interest rates until the program ended March 31.

The federal tax credits for home buyers, which boosted sales for more than a year, added to the confusion. The tax benefit kicked housing sales into gear; the end of the credit put the housing market back on life support.

"We misjudged the impact of the two tax credits," said economist Patrick Newport of IHS Global Insight Inc. "We expected the credits to both shift demand and increase sales and starts. It appears that the tax credits mostly shifted activity."

The level of interference is now much lower, and a clearer picture of the market is emerging, allowing economists, as well as civilians, the opportunity to predict with a bit more accuracy.

The "when" remains difficult to pin down, although the nonprofessionals - typical homeowners and renters - believe they have the answer.

Recovery will occur anywhere from 2012 to 2015 and even later, according to most of the 2,000 homeowners and renters surveyed by Harris Interactive in November.

The survey, commissioned by real estate search engine Trulia and foreclosure-tracker RealtyTrac Inc., found that just 4 percent thought the market had recovered already.

"Sellers and buyers are tamping down their expectations for a swift recovery in the housing market and bracing themselves for a long, slow climb back to a healthy real estate market," said Trulia chief executive officer Peter Flint.

"Government incentives have come and gone, and historic lows in interest rates have done little to spur recovery," he said.

From the responses, Flint says consumers have a "What's next?" attitude, "since they have lost faith in banks and their government to make good decisions."

What it will take for a market turnaround is a much easier question to have answered by the economists.

"On the face of it, getting the housing market to recover is quite easy, since it's well-established what drives housing," said economist Kevin Gillen, vice president of Econsult Inc., of Philadelphia.