The worst still may lie ahead for the U.S. housing market.

The jump in 30-year mortgage rates by more than a half a percentage point to 6.74 percent in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, according to the National Association of Realtors.

"It's a blood bath," said Mark Kiesel, executive vice president of Pacific Investment Management Co., the manager of $668 billion in bond funds.

"We're talking about a two- to three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually it will take the stock market and corporate profit."

Confidence among U.S. home builders fell in June to the lowest since February 1991, according to the National Association of Home Builders/Wells Fargo index released this week. New-home sales will decline 33 percent from 2005's peak to the end of this year, according to the Realtors group, exceeding the 25 percent three-year drop in 1991 that helped spark a recession.

"It's not just a housing recession anymore; it looks more and more like an economic recession," said Nouriel Roubini, a Clinton administration Treasury Department director and economic adviser who now runs Roubini Global Economics in New York.

Expense Of Foreclosures Showing

Goldman Sachs Group, the world's biggest securities firm, and Bear Stearns Cos., the largest underwriter of mortgage-backed securities in 2006, said last week that rising foreclosures reduced their earnings. Bear Stearns said profit fell 10 percent, and Goldman reported a 1 percent gain, the smallest in three quarters. Both firms are based in New York.

The investment banks, insurance companies, pension funds and asset-management firms that hold some of the United States' $6 trillion of mortgage-backed securities have yet to suffer the full effect of subprime loans gone bad, said David Viniar, Goldman's chief financial officer. Subprime mortgages, given to people with bad or limited credit histories, account for about $800 billion of the market.

"I continue to believe that we haven't seen the bottom in the subprime market," Viniar said in a June 14 conference call with reporters. "There will be more pain felt by people as that works through the system."

The share of people taking out all types of adjustable- rate home loans averaged 29 percent during the past three years, compared with the 17 percent average in the prior three years, according to data compiled by McLean, Virginia-based Freddie Mac.

Higher fixed mortgage rates and stricter lending standards mean some of those borrowers won't be able to refinance into fixed-rate loans. Many of them have seen their home's value drop even as their interest rates adjust higher.

"When all these people see their mortgage payment and it's up 40 or 50 percent, they're going to say, 'We can't stay in this house,'" Pimco's Kiesel said. "And there are millions of people in this situation."

Three months ago, former Federal Reserve Chairman Alan Greenspan said there was a "one-third probability" of an economic recession this year, in large part due to the unsteady housing market. He reiterated that view last month at a conference hosted by Merrill Lynch & Co. in Singapore.

"We are clearly having troubles in the capital investment area as well as potentially in the consumption area, and obviously housing being a significant drag," Greenspan said.

An Optimistic Outlook

On Thursday, Bank of America Corp. Chief Executive Officer Kenneth Lewis said the U.S. housing slump is almost over.

"The drag stops in the next few months," Lewis said. "We do not see a recession. Because that drag stops, you'll see the economy begin to pick up in the third and fourth quarters."

The median U.S. price for a previously owned home fell 1.4 percent in the first quarter from a year earlier, the third consecutive decline, according to the National Association of Realtors. Before the third quarter of 2006, prices had not dropped since 1993. The quarterly median may dip another 2.4 percent in the current period, the Chicago-based industry trade group said in its June forecast.

Measured annually, the national median has not dropped since the Great Depression in the 1930s, according to Lawrence Yun, an economist with the trade group.

Some owners are selling their homes at "fire sale" prices to avoid foreclosure after seeing their adjustable mortgage rates spike, said Lawrence White, an economics professor at the Stern School of Business.

"Prices will continue to soften for as long as we have distressed sellers," White said. He said some regions of the U.S. could see price declines of 10 percent in the next six to 12 months. The slump probably won't cause a recession, he said.

"It's not going to be the 1929 stock market disaster, with people jumping out of buildings, but there is going to be widely dispersed pain for the next few quarters," he said.