How badly has housing hurt the economy?

A lot depends on how long it takes the housing market to get back on its feet.

“You still need binoculars to find the bottom,” said Stuart Hoffman at PNC Financial. “It’s not in sight.”

With the inventory of unsold homes at double the levels seen during the housing boom, some market watchers and builders say recovery is at least a year away. The National Association of Realtors reported this week that an index tracking pending home sales fell in July to its lowest level in six years.

The impact of the housing recession has been widespread, but like everything else about real estate, a lot depends on where you live. While mortgage defaults and foreclosures are setting records, more than half of them are coming from four states: California, Florida, Nevada and Arizona. Michigan and Ohio also have been hard hit.

Just as the economy’s strength varies from one region to the next, some industries are faring better than others. Not surprisingly, much of the current weakness is showing up in housing-related industries – from a slowdown in construction to weak sales of home furnishings.

Despite the drop in jobs in August, the fallout from the collapse of dozens of mortgage didn’t account for big job losses in the government’s August figures; the steepest drop came in government jobs.

But there are signs that steeper housing-related layoffs may be coming. Financial firms announced more than 35,000 job cuts in August — the biggest monthly total for the industry in nearly 15 years, according figures compiled by the employment firm Challenger, Gray and Christmas.

Still, it’s too soon to assess the long-term damage from the financial storm that swept through the global credit markets last month and brought an abrupt tightening of credit. To calm the markets and free up credit, the Fed already has cut the so-called discount rate — the price of loans made directly to big banks. That seems to have restored some confidence to lenders and investors who had been spooked by problems stemming from mortgage loans made to borrowers with poor credit.

Now many economists and investors expect the central bank to use its next regular meeting to follow that easing with a quarter-point cut in federal funds rate — the broadest pricing for short-term borrowing under the Fed’s control.

But as long as the economy continues to post slow, steady growth, it’s not clear those rate cuts will be needed. While such cuts would be welcomed by financial markets, they also could taken as a sign that the Fed has succumbed to political pressure and eased up too soon, said  Brian Wesbury, chief economist at First Trust Advisors.

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