The rapid unraveling of the subprime-mortgage industry is stirring new concerns about the already weak housing market.
A report released yesterday by Credit Suisse analyst Ivy Zelman forecast that credit tightening for financially stretched borrowers will lead to a 20% drop in new-home sales in 2007, to about 890,000, as buyers find it more difficult to borrow for homes.
Coupled with a general waning in demand for housing and the exodus of speculators from the market, Ms. Zelman expects that credit tightening will cause housing starts to drop 35% to 45% through this year and into 2008 from their peak annual rate of 1.8 million units in January 2006.
Credit Suisse is the first company that predicted the rapid increase in the default rate of the subprime mortgage industry.
