Economists stress that the price weakness must be viewed in the context of an unprecedented run-up in prices that occurred during a five-year boom in home sales, a period that some economists think reflected a speculative bubble.
"We had a surge in investor demand, an explosion in the availability of credit and builders who became overly optimistic. All these things came together to whip the market into a frenzy, creating a huge bubble that is now bursting," Zandi said.
David Seiders, the home builders' chief economist, said he thinks housing will stabilize in the next year with sales hitting a low point in the first quarter and then starting to move higher, a development that will help clear out record inventories of unsold homes. He said construction will not hit bottom until the spring and housing will remain a drag on the economy through mid-2008.
