NEW YORK -- The U.S. housing market will continue to slump for the remainder of 2007, with home sales falling further and price growth will continue to slow, a leading industry economist said on Wednesday.

David Berson, vice president and chief economist at Fannie Mae, said 2006 and 2007 combined will show the biggest drop in sales since the housing downturn of 1989-91.

"If you combine the drop in affordability, the slowdown in job growth, the still-good demographics for housing and the continued pull-out of investor demand, we expect housing activity to continue to fall this year," he said on the company's 2007 Economic and U.S. Mortgage Market Outlook conference call.

An increase in mortgage rates over the past few months, particularly in the past month, will soon have an additional negative impact on housing demand, he said.

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Berson expects new and existing home sales to decline by 10.2 percent in 2007 to the lowest level since 2002. Single-family starts are expected to fall 21.7 percent.

"That's a decided slowdown from even last year's numbers," he said.

Berson said at some point in 2008 he expects unsold inventories to have fallen enough to relieve downward pressure on house prices.

It is not clear if the housing market has bottomed out, despite the weak data in the first quarter, particularly for new home sales, he said. There are no real signs of the market picking up any time soon, which was reinforced by Tuesday's data from the National Association of Home Builders, he added.

The NAHB said U.S. home builder sentiment slid in July to its lowest since January 1991 as fallout from the housing slump and subprime mortgage crisis caused a glut of new homes on the market.

"I am expecting some modest additional declines in housing over the second half of this year," he said.

Berson's projections were echoed by the chairman of the U.S. Federal Reserve, Ben Bernanke, in Wednesday testimony in Congress. He warned that declines in homebuilding will continue to weigh on U.S. economic growth.

"Rising delinquencies are creating personal, economic, and social distress for many homeowners and communities — problems that likely will get worse before they get better," Bernanke warned.

Berson said the housing market should bottom out close to the end of this year and there may be a small increase in demand in 2008, centered in the second half of the year.

Housing starts, however, will continue to fall through 2007 and perhaps into early 2008, he said.

"Unsold inventories remain excessively high," Berson said. "We need a period of time in which sales growth is stronger than starts."

The Commerce Department said on Wednesday the pace of U.S. home construction rose 2.3 percent in June but building permit activity, a sign of future construction plans, sank to its lowest rate in 10 years.

Housing starts will probably not increase significantly until the second half of 2008 and until then it should continue to edge down. Housing starts will be decidedly weaker than sales over the next two to four quarters, said Berson.

Berson said the growth rate in the Office of Federal Housing Enterprise Oversight Home Price Index will probably slow to about a 1 percent increase in 2007 and next year may edge down slightly.

"Price gains are still positive, but they've slowed dramatically and we think they will slow some more given the overhang of inventories," he said.

A broader measure of house prices, the Standard & Poor's/Case-Shiller Home Price Index, has shown a decline in prices. Berson said that index should decline around 2-3 percent in 2007 and fall again next year.

The S&P/Case-Shiller index includes jumbo loans and a much bigger sample of "Alt-A" and subprime loans, which are extended to borrowers with poor credit histories and which have suffered a rising rate of defaults.

Mortgage originations will slow to $2.47 trillion in 2007 from $2.76 trillion last year, he said.

Mortgage debt growth should slow to a 5.7 percent pace in 2007 from a 9.2 percent pace last year, Berson said.

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