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By Desiree French

RISMEDIA, Jan. 15, 2009-Now that we have begun a new year and will embark on what could be the most expensive economic stimulus package in history, Americans will soon discover how unfolding events will affect the housing market. Last year was the nastiest housing market on record. Economists and industry experts expect another dismal year, marked by lackluster sales and falling prices as demand remains weak because of slumping consumer confidence, tighter lending standards and rising unemployment.

Also likely to impact the market: between $60 billion to $100 billion of ALT-A and Option ARM loans which will probably reset early because of falling home prices, an existing inventory of nearly 1 million REOs not yet on the MLS, and more than 1 million homes now in the foreclosure process. “It’s likely that about 50% of these will ultimately become REOs, further burdening a system that is already overwhelmed,” says Rick Sharga, senior vice president of Realty Trac.

Oversupply is a real problem. In November, 4.2 million existing homes (the latest figures available) were on the market from a year earlier, far above the 2 million to 2.5 million considered normal. Meanwhile, home prices dipped 13.2%-the most on record.

Despite the gloomy outlook, the U.S. economy is expected to emerge from recession in the second half of the year once the fiscal stimulus, Federal Reserve rate cuts and Treasury Department actions to strengthen the sluggish economy kick in. This should bode well for housing, as the long-awaited “bottom” materializes, setting the stage for a gradual recovery in 2010.

In the best-case scenario, home sales will rise to some extent and prices, which have dropped 20.3% since peaking in June 2006, will stabilize. Even then, the recovery is expected to be on a region-by-region basis, with some of the hardest hit states-Ohio, Michigan, Indiana, California, Florida, Nevada and Arizona-lagging behind much of the rest of the country.

“The continually-growing stimulus package that President-elect Obama is promoting won’t in and of itself do anything to correct the housing market, but it could provide a relatively high number of jobs, minimizing unemployment and having a ripple effect across a number of industries,” says Sharga. “That, in itself, could hasten the end of the recession. As unemployment stabilizes, and the economy starts to recover, low mortgage rates, much lower home prices and government incentives to encourage home buying should start to have a significant effect.”

President-elect Barack Obama’s massive economic recovery plan, which has a proposed $675 billion to $775 billion price tag, is designed to create or preserve 3 million new jobs through 2010. Nearly 2 million jobs were lost in the first 11 months of 2008, and the economy could lose as many as 3.5 million jobs this year. Unemployment, now at 6.7%, could climb above 9%, a figure not seen since the recession of the early 1980s, before the economy rebounds. Stemming joblessness could go a long way to help alleviate the housing slump.

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