The nation’s housing market is not cooperating the way analysts at the A. Gary Anderson Center for Economic Research at Chapman University in Orange, Calif., had hoped it would.

The drop in residential construction is steeper and over a longer time than many analysts had predicted. The national Gross Domestic Product has taken a hit of 1 percent over the past few quarters as a result. Likewise, housing starts are forecasted to drop from their recent high in 2006 at 1.8 million units to 1.3 million for 2008. And that’s not all!

“The worst of the downward national housing price spiral is not over,” said economist and Chapman President James Doti in a press release distributed Tuesday. “Our forecast calls for housing prices to decline around 5 percent before relatively strong job growth helps to bring about a recovery by late 2008.”

According to their latest figures, Doti noted that price appreciation on resale housing peaked during the third quarter of 2005 at 14.2 percent (nationally) and then plummeted to 1 percent by the third quarter of 2006.

With the housing market languishing on the downslide, Doti expects export sales — which are forecasted to increase by almost $100 billion in both 2007 and 2008 — to replace real estate as the major driver of economic growth in this country.

Still, Doti, along with his colleague Essie Adibi, director of the Anderson Center, are diligently standing by their 2007 forecast made last December that real GDP will pickup for the second quarter of 2007 (2.1 percent growth annualized) followed by a modest increase in 2008 up to 2.6 percent growth.

With the slowdown in Real GDP, the Chapman forecast calls for the Federal Reserve to respond by lowering the federal funds rate (a short-term interest rate) by a quarter point early in 2008.

In the meantime the Federal Reserve responded to the indicated slowdown by maintaining the Federal Funds Rate at 5.25 percent once more. As Chapman predicted, in its statement released Thursday the Federal Open Market Committee justified keeping the rate as is due to noticeable improvement in core inflation in recent months.

“Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector,” the FOMC said. “The economy seems likely to continue to expand at a moderate pace over coming quarters.”

This statement by the Fed is in synch with the Chapman forecast for improvement in real GDP over the long term. And for investors and prospective home buyers shopping for foreclosure bargains on RealtyTrac it means the buyer's market should continue at least through the end of 2008.