Housing starts have hit their low point and will gradually pick up this year, Goldman Sachs chief economist Jan Hatzius told CNBC Wednesday.
"We're pretty confident that housing starts have bottomed at this point," he said. "It’s going to gradually pick up as the still large amount of vacancies and excess supply comes down."
Housing prices, however, will continue to fall until hitting bottom in the second half of the year, according to Goldman's forecast.
Hatzius said the price bubble of 2006 has finally disappeared, and housing is now "fairly valued," but there will be "some small declines in house prices for most of this year basically because of the excess supply that’s still out there. But we’re pretty confident that we’re pretty close to the bottom here."
Hatzius is also confident the Federal Reserve will have some form of quantitative easing later this year.
"We think they’re still missing their dual mandate significantly on the weak side, even with all the policy measures that they’ve already taken," he said of the Fed.
There is still a "big gap" between the current unemploymentrate of 8.6 percent and the Fed's estimate of "sustainable unemployment" of 6 percent, Hatzius said. "We don’t think that gap is going to significantly diminish in the course of this year, so I think they’re going to target that."
He also thinks inflationis going to go below the Fed's target by the end of the year. The Fed said in November it was comfortable with the current inflation level of 3.9 percent, which includes food and energy prices, or 2 percent excluding them.
Hatzius also reiterated Goldman's forecast for a still sluggish recovery of 2 percent or so in 2012. the year "won't look that different from 2011," he said, with the first half of this year slower than the second half of last year.