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Recession Not Inevitable, Housing Woes Or Not

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AP

Susan Wachter, a professor of real estate and finance at the Wharton Business School, told CNBC’s “Morning Call” that the current housing slump won’t necessarily drag the economy into recession.

“It certainly heightens the possibility of a recession,” Wachter said Tuesday. “I don’t see that it makes it inevitable by any means.”

She said building permits are down, and this will allow new home builders to sell existing inventory.

But troubling signs in the housing sector abound: Foreclosures are increasing, home prices are flat or decreasing, “exotic” mortgages remain popular and adjustable rate mortgages valued at $1.3 trillion are scheduled to reset to current creates.

Wachter said the mortgage resets could create a drag on the economy for as much as 1.5 years.

Using Genworth data, Wachter helped create the new U.S. Mortgage Payment Index that will allow prospective buyers to “have more information and make better choices” when financing a home.

For example, payments on a $200,000 Adjustable Rate Mortgage could start at $739 a month and increase to $2,109 by the 61st month.

“A fixed-rate mortgage with insurance and a low down payment five years down the road is far more affordable than some of these exotic mortgages -- and it’s competitive today,” Wachter said.