The National Association of Home Builders Chief Economist, David Seiders, reports that the while the housing downturn has been underway roughly two years, most indicators point toward further deterioration in 2007, with only a slight improvement in 2008.

In his monthly report, Seiders notes that a nationwide survey of more than 400 single-family builders, conducted by NAHB in June, suggests that annualized sales contractions will abate, from 15.8 percent in the first quarter to 4.3 percent in the fourth quarter. "We're looking for positive quarter-to-quarter growth throughout 2008, but the year-to-year gain is less than 1 percent," he says.

The outlook of residential fixed investment is "a whopping 13.9 percent" contraction. The NAHB's single-family Housing Market Index hit a current-cycle low of 28 in June, down from a high of 72 in mid-2005. The HMI was down by more than 50 percent in all four regions of the country, and all three component measures (current and expected sales as well as traffic of prospective buyers) had values less than half their 2005 peaks. When the index is below 50 percent, the outlook is negative.

He calls the housing correction to date "stunning," as the single-family market copes with two major imbalances -- historically low affordability and record high inventories of vacant homes, both new and existing.

The NAHB survey asked builders to rate housing market conditions in June, as compared to the recent past. Thirty-nine percent of respondents said that market conditions were stabilizing, while 43 percent said things were still declining. Only 9 percent said the markets were improving. The rest were not sure, reports Seiders.

Despite the grey outlook, not all builders are slowing production. Two-fifths of the builders in the June survey said they plan to start about the same number of units in the second half of this year as in the first half. But 36 percent said they plan to start fewer units in the second half. Only 23 percent said they plan to increase production. NAHB's current forecast for the second half of 2007 shows a 4 percent decline from the first-half pace, with single-family starts bottoming out in the fourth quarter at an annual rate of 1.1 million units.

Seiders predicts that single-family starts will decline 23 percent in 2007, followed by a 2 percent recovery in 2008. Multifamily starts will decline 16 percent in 2007 and another 2 percent in 2008. While manufactured home shipments are predicted to decline 19 percent in 2007, they'll catch wind in 2008 with a 10 percent recovery.

With the Gross Domestic Product held to 0.7 percent for the first quarter, and growing only about 3 percent the second quarter, Seiders predicts a 20 to 25 percent chance of recession by 2008.