Lawrence Yun, the new chief economist of the National Association of Realtors, appeared here during his organization's fall conference, and said that although 2007 has been challenging for the housing market, there should be improvement in 2008 as problems with the credit crunch are overcome.

The demand for housing remains strong, Yun said. Lenders are cleaning up underwriting standards.

In addition, there is proposed legislation in Congress to increase FHA loan limits, which would help provide credit to potential buyers who would have turned to risky subprime loans in the past, he said.

Despite the credit crunch and housing slowdown, Yun said he thinks there is only a 10 percent chance of a recession. He said his prediction doesn't mean there aren't challenges ahead for the economy. Some of his peers are forecasting a recession, he said.

"We are facing some challenges," Yun said. "The economy is expanding but not as strongly as before."

Yun said job growth is slowing, but added there are some bright spots with corporate profi ts growing, bolstered by strong exports with a weak dollar. The stock market remains strong and might set more records in 2008, he said.

"Companies are flush with cash with which they can hire more workers and invest in new plants and invest in technology," Yun said.

Yun predicted gross domestic product will grow by 2.8 percent and jobs will grow by 1.1 percent. Infl ation will remain below 3 percent, and he said there's no indication that interest rates will rise.

The decline in new-home construction has affected the economy's growth, but many workers who lost jobs in the housing industry are now working in commercial construction.

One weakness in the economy has been consumer spending, which has been falling as people's home values decline, Yun said.

"It is my view consumer spending will slow down, but we are creating jobs and income growth will offset the housing loss impact," he said. "Exports are strong enough to carry the economy forward."

Also at the conference, former National Association of Realtors Chief Economist John Tuccillo said he remains concerned about the drop in home appreciation and fl at wages vastly curtailing consumer spending and greatly affecting the economy.

"People had been using their homes as ATMs, and they can't do that anymore," said Tuccillo, now a consultant. "I see consumption levels deteriorating over the next six months and then consumer confi dence wanes ... It is not a pleasant outlook for me."

Commercial real estate: Although sales have been down in the housing market, Yun said slower appreciation and rental growth for commercial properties, whose rate of return has dropped during the past two quarters, may leave investors on the sidelines in the commercial market where the credit crunch is playing a role.

Yun said foreign investors are buying more commercial real estate than in 2006 because the weak dollar has made those investments attractive. Many other investors might put off acquisitions in a market that has seen the rate of return decline in the past two quarters in the apartment, industrial, offi ce and retail sectors. They will fi nd less risk and a similar return by investing in certifi cates of deposit, he said.

Yun warned that vacancy rates for retail properties could rise to levels seen earlier this decade and that rents may grow by as little as 1 percent in 2008. Only the multifamily sector will have rent growth in 2008, and Yun suggested that sector may not benefi t as much as expected from the downturn in single-family housing and rising foreclosures. The reason: More people are doubling up, and some children are even moving back with their parents for now, he said.

As for investment opportunities, Tuccillo says the hotel market has performed well and has seen tremendous growth. He also said he likes high-technology, low-rise buildings in edge cities or the suburbs because that's where the workforce is going. He's not a fan of large malls, which no longer fit a niche, he adds.

Cynthia Shelton, director of investment sales of Colliers International in Orlando, Fla., said malls aren't a good investment in an industry where only two were built last year.

Their future is not strong as developers turn to lifestyle centers where people work, shop and are entertained, she said.

Although vacancies are rising, Shelton said there are opportunities in retail investments.

"Even though it is down, that is the time you want to buy," Shelton said. "You can get a better deal on it."

Yun said investors should look for markets with a spurt in job growth in recent quarters because that will raise demand for residential and commercial properties.

More on commercial real estate: Could the housing industry's subprime woes and credit crunch be coming to the commercial real estate sector?

Las Vegas was cited as a possible example in an article by the Globe and Mail, a Toronto newspaper, about New York University economist Nouriel Roubini, who suggested the commercial real estate market may be headed for its own crash.

Roubini said that the same factors that got housing lenders into trouble are rampant in commercial real estate — poor underwriting standards, loose lending to marginal projects and interest-only, minimal-equity loans, according to the article.

"The bubble in commercial real estate construction, like the bubble in residential construction, will soon turn into a painful bust," he said on his blog.

The newspaper used that comment to mention Las Vegas in a discussion on how commercial real estate follows the housing market.

"So as subdivision ghost towns pop up around overbuilt cities such as Las Vegas, San Diego and Phoenix, logic suggests the commercial and offi ce complexes that normally follow these developments will falter," the article says.

The value of U.S. commercial real estate owned by big pension funds fell 2.5 percent in the third quarter, according to an index by the Massachusetts Institute of Technology's Center for Real Estate.

Lenders are overstretched on the basis of commercial real estate loans representing a 118 percent of real estate values in the third quarter, Roubini added.

"The coming bust of commercial real estate will lead to another round of massive losses for banks who made these loans and the investors who bough these toxic mortgages," he said on his blog. "The fi nancial markets massacre is just starting and a generalized liquidity and credit crunch will become full-blown in the next few months."