LANSING – This past spring the likelihood the United States would fall into another recession was at 10 percent in Lawrence Yun’s mind; now that estimation has grown to 30 percent.

Yun, the chief economist for the National Association of Realtors, told the National Conference of State Legislatures summit the “economic weapons” to combat a potential recession “have been used up.”

The federal government can’t cut taxes or spend more money and the interest rates already are at zero. The Federal Reserve could do some quantitative easing, but it just announced that, instead, interest rates will stay where they are for the next two years.

A significant economic recovery cannot be achieved until there is robust recovery in the housing sector, Yun said. While there were 5 million home sales, the same as in 2000 before the housing bubble, there are 35 million more U.S. residents.

Yun said an upside to the downgrading of U.S. debt by Standard and Poor’s last week has been that investors are flooding U.S. Treasury bonds, which in turn is pushing down interest rates.

There is pent-up demand for housing. People are living with their parents or roommates and are only starting to look at buying a home recently because rents are increasing, Yun said.

While the job market “is not terrific,” it certainly has been worse and the housing market is underperforming where it should be. People who have money by-and-large aren’t spending it and Mr. Yun said he attributed the low consumer confidence level to oil prices and inflation.

In April, oil prices began to rise and that immediately tells people they will have less money to spend on other items.

“I think it has more psychological impact. People just pull back,” Yun said.

Inflation is at 3.5 percent and rising, which is another factor in how people feel about spending their money, particularly on larger purchases like a home.

Small businesses, which are the catalyst for economic growth, usually start by the person taking equity out of their home, Yun said. But housing values have declined enough that not as many people have equity to draw from to start up a new business.

Serious mortgage delinquencies and foreclosures will continue to affect housing, he said, as likely one-third of the market will be distressed home sales for the next two years. While people who have purchased a home in the past two years are not likely to default, the country is still dealing with a glut of mortgage troubles from the housing bubble.

However, people in the market to buy a home are more interested than they have been in recent years to buy a distressed property, Yun said, because the price is right.

New home sales, however, will continue to be low because builders can’t get credit to build and the price of a new home remains above that of an existing one.

Policies out of Washington will continue to affect the economy and housing market, Yun said. Republicans pursuing higher requirements for down payments for a mortgage and Democrats wanting to eliminate mortgage interest deductions for high-income households or people with a second home, are two examples of policies that would be bad for the housing market, he said.

While banks are still being tight with their lending, Yun said if they returned to previous underwriting standards and allowed people with slightly lower credit scores to borrow, there could be a 15 to 20 percent increase in the number of people who could buy a home, which would be a boon to the industry.

Real estate is beginning again to be a safe haven for investors, similar to gold. But Yun said the weakening U.S. dollar has also meant foreign investors can buy property here.

Looking at the next two years, Yun estimated national gross domestic product will rise 1.5 to 2.5 percent, while 1.2 to 1.7 million jobs will be created.

Mortgage rates will likely rise to 5.5 percent by the end of 2011, and again increase to 6 percent on 2012.

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