With the housing market’s woes the latest obsession in the US, many Americans are desperately looking for housing market predictions for 2008. And the latest news is far from encouraging. This from CNNMoney:

Global Insight, the world’s leading company for economic and financial analysis and forecasting, today released the first quarter 2008 update of the U.S. housing valuation analysis, House Prices in America, showing that single-family home prices fell for the third straight period, dropping at a steep 6.7 % annualized rate. Nationwide, 262 housing markets out of 330 in the study — the overwhelming majority of the nation’s housing markets — experienced declines, accounting for 84% of all housing units and 89% of real estate value.

This comes on the back of a depressing data from S&P’s/Case-Shiller index on May 27, which showed that US house prices fell 14.1% year-on-year in the first quarter of 2008.

Chuck Butler in The Daily Reckoning notes that even San Francisco Fed president Janet Yellin is gloomy about the US housing market.

“Home construction and property values ’seem likely to decline well into 2009,’ Federal Reserve Bank of San Francisco President Janet Yellen said … And a jump in foreclosures, as values fall and adjustable rate mortgage costs rise, is adding to concern. Foreclosure filings climbed 65% and bank seizures more than doubled in April compared with a year earlier, according to figures issued this week.”

Things aren’t much better on the other side of the Atlantic, where Britain’s mortgage lending hit a record low in March. “Fundamentally, houses are too expensive,” says Ben Traynor in the Fleet Street Daily. “But it’s hard to say how far and how fast they’re going to fall.”

I think it’s going to take its sweet time sorting itself out. And here’s the kicker — the longer it takes, the greater the likelihood of a recession.

The longer this uncertainty drags on, the more entrenched negative sentiment will become. This will make a recession not only more likely, but more difficult to get out of.

Sadly I reckon this is exactly the scenario we’re facing. A long, drawn out recession. A few false dawns, with everyone, their confidence battered, scurrying for cover again at the first wobble.”

Not everyone is down in the dumps, however. “Don’t believe all the gloom and doom you read,” says Steve Sjuggerud in today’s Daily Wealth. ”The U.S. housing bust may be just about over. We should be darn close to the bottom… possibly within one year of it.”

Steve offers two simple reasons why we shouldn’t be so negative with our housing market predictions:

1) Houses are affordable again.

You may be flabbergasted to hear this… But U.S. houses are affordable again.

Since last summer, the change has been extraordinary. The typical mortgage payment on the typical home in America now is 20% cheaper than it was less than a year ago. Let me explain:

Last July, the median U.S. home would have cost you about $230,000. And you’d have paid about 7% in interest on your mortgage. So that’s a $1,200 monthly mortgage payment on that house (assuming a 20% down payment).

Today, the median home price is $200,000 – a $30,000 difference from last summer. And mortgage rates are down to 6%.

Between the lower price and the lower mortgage rate, you’d be paying less than $1,000 a month on your mortgage now – for the same house that would have cost you $1,200 last summer!

Most people shop for homes based on their mortgage payment… They ask, “How much can I afford each month?” And then they look for homes that will give them a payment they can afford.

So the big question is: Can the typical household afford the typical mortgage payments on a typical home? Last summer, the answer was no. But now, the answer is yes.

You may be surprised to hear it, but thanks to lower mortgage rates and lower home prices, homes are affordable… They’re just as affordable now as they were right before they boomed in the 2000s.

2) We’ve paid our dues, pricewise.

You may also be surprised to learn home prices in general don’t go up that much…

The median U.S. home price has only risen at about 1.5% per year since the 1970s, after you subtract inflation. That’s not much of a gain. (Even that 1.5% price gain is overstated… Homes have gotten much larger since the 1970s.)

The annual increase in price has been consistent… Whenever prices run significantly above that trend, like in 1978 or 1987, they run significantly below that trend three to four years later.

Cycles happen. You can see it easily in this chart. You can also see in 2005, prices ran farther above trend than any time in history. And now, in 2008, prices have fallen farther below trend than any time in history.

Could we see another year or two below trend? Of course. But I expect that we’re in the process of finishing “paying our dues.” We’ll return to the trend.