Sales in the US housing market remained weak in April, and the outlook for May is subdued.

The rise in mortgage defaults and increasing foreclosures as a result of the ongoing fallout from the sub-prime mortgage sector has had another, equally concerning affect on the housing market; lenders tightening their credit standards to avoid further foreclosures from homeowners who cannot afford to meet mortgage payments has further stifled the housing market and may prolong the worst housing slump since 1991.

The Mortgage Bankers Association expects home sales to expect home sales to decline through 2007, as lenders are making it increasingly difficult to get mortgages approved.

Housing activity this year will be lower than in earlier forecasts, with clearer analysis of the effects of these stricter lending standards and a decline in sub-prime mortgage origination, according to the latest projections by the National Association of Realtors (NAR). Lawrence Yun, NAR senior economist, said “If it weren’t for a favorable economic backdrop, housing would probably have a hard landing.  As it is, we see this as a soft landing with home sales rising gradually in the second half of the year and prices recovering a bit later”.

The trouble witnessed in the housing market will have more of an effect on economic growth than had been earlier estimated. The National Association of Business Economists (NABE) has lowered its forecast for economic growth from 2.8% in 2007 to 2.3%. The downgrade came after official data showed that the economy grew only 1.3% in the first three months of the year.

Growth of real gross domestic product (GDP) slipped to an annual rate of 1.3% in the first quarter of 2007, according to the Commerce Department.

The current price of crud oil has added to economic worries, both in the US and on a global scale, as prices remain high at the $71 a barrel mark.

The Federal Reserve has kept interest rates steady at 5.25% since last June in order to bring down inflation. Whilst the slow economic growth has helped contain inflation so far, the Fed has stated that inflation remains its predominant concern.