Housing's Pain Not Easing

Lavorgna, speaking at a real estate conference in New York City on Thursday, said most of the direct hit from housing has already been felt, at least in terms of its drag on economic growth. His comments came before Thursday's government report on third-quarter gross domestic product was revised upward to 4.9%.

Lavorgna expects housing to bottom by the second quarter of 2008. He also argued that the approximate $400 billion of resets in adjustable-rate mortgages next year will hurt banks but will not affect household consumption.

Assume the average rate reset is 500 basis points, he argues, and that amounts to $20 billion of increased payments, which is just a blip in the $10 trillion of annual U.S. personal consumption expenditures.

Rate resets have hit homeowners particularly hard as falling housing prices cut into home equity. The median sales price of a new home in October dropped to $217,800 from $238,000 in September, the Census Bureau report said.

The data showed roughly 516,000 new houses for sales at the end of October, representing a supply of 8.5 months at the current sales pace. In September, there was an 8.3-month supply.

While this is the second straight month of improvement in inventory levels, inventory remains extremely high, York said in his note.