Paulson ’fesses up on severity of housing slump; will others join him?

Well, Treasury Secretary Henry Paulson is finally admitting there’s a real problem. And, at last, some home builders and manufacturers’ groups are undergoing at least a mild confessional, too:

The National Association of Home Builders said Tuesday its housing market index, which tracks builders' perceptions of conditions and expectations for home sales over the next six months, fell two points to 18 in October, the lowest level since the index began in January 1985. It was the eighth straight monthly decline. ...

Declines in builder confidence were seen across the country, except for the Midwest, which increased by two points but remained the weakest region nationwide.

Builders, including Pulte Homes Inc. and Hovnanian Enterprises Inc., have been holding special promotional sales with deep discounts. Still, Brian Catalde, the trade group’s president, said in a statement that many potential buyers are hoping that even better deals will come along.

The group's chief economist, David Seiders, said in a statement that many prospective buyers have “unrealistic expectations” about new home prices and about how much their current homes are worth in this market.

Seiders projected that sales will stabilize in the next six months and show “significant improvement” in the second half of next year.

The report came as Treasury Secretary Henry Paulson, in a speech at Georgetown University’s law school, said the housing market correction is persisting for longer than expected and appears likely to “continue to adversely impact our economy, our capital markets and many homeowners for some time yet.”

That said, it looks like Seiders is just sniffing decaf coffee so far, compared to Paulson. Seiders doesn’t yet seem to have the phrase “some time yet” in his vocabulary.

If not Paulson’s mug, Seiders might need a couple of sips from Ben Bernanke’s cup of java.

Wall Street sank for a second straight session Tuesday after Federal Reserve Chairman Ben Bernanke said the slumping housing market remains a “significant drag” on the economy.

Bernanke’s speech Monday night in New York elevated concerns that the summer's credit tightness might persist into the winter — a sobering thought for investors, who are sifting through mixed third-quarter earnings and watching energy costs rise.

Despite the Fed’s rate cut last month, between housing and energy news, I’m keeping my nine-month recession odds prediction near 50-50 and my 15-month prediction (January 2009) at above that.