Economists seek solutions, signs of life in housing

By Ros Krasny

SAN FRANCISCO (Reuters) - Top economists at the Allied Social Sciences Association's annual meeting have been searching -- in some cases, in vain -- for signs of life in the U.S. housing market, a key element for busting the country out of a deep economic downturn.

Karl Case, economics professor at Wellesley College and co-creator of the Case-Shiller housing price index, said it was hard to predict when housing prices would finally hit bottom.

"People who say, 'Oh, the bottom is coming in February,' are in la-la land," Case said during a panel on housing in the macro economy at the ASSA meeting in San Francisco.

But he also said there are a few signs of life.

Some of the biggest potential overshooting in home prices on the way down is in states such as Arizona and Florida, areas where major overbuilding took place during the boom. "Where this glut is occurring is fortunately in places where people still want to go," Case said.

Case told Reuters that two other elements in the current data provided some hope of a market turnaround.

"People are showing up at the (foreclosure) auction sales and buying. The price declines are starting to gather in buyers," he said. "And a fair number of people are prepared to lower the price on their house until it's sold."

That capitulation effect, breaking through the phenomenon of "downward stickiness" on housing prices, started to show up more markedly in 2008, Case and collaborator Robert Schiller, a Yale economics professor, said in a paper presented at the conference.