"I truly anticipate that lawmakers will get it together, but that is definitely a challenge to my economic outlook," said Zandi. "If policymakers can't get it together by Oct. 17, we're toast, and I think we are going into recession."
Assuming the government meets these challenges, Zandi cited three reasons for optimism moving forward. First, the fiscal drag that is weighing heavily on the economy in the form of tax increases and government spending cuts that are now being implemented will continue to fade in the coming years. This fiscal drag will shave 1.5 percent off of GDP growth this year, about 0.7 percent next year and gradually fall to zero by 2016, he said.
Second, Zandi noted that the "private economy has done a marvelous job of reducing leverage and getting their balance sheets in order. American companies are in very good shape and they will do well going forward, with continued strong export growth. That will be a strong source of economic growth for a long time to come."
Finally, Zandi said that demographics make a compelling argument for a strengthening housing market.
"In the current housing market, supply is running around 950,000 annual units," he said. "In a normal economy, we should be producing 1.7 million units. That's a big difference. We've already made a lot of progress in working off excess inventory. We won't get housing construction up to 1.7 million quickly. The big problem in the next five years won't be too much housing but too little housing."
All markets are local
Looking beneath the national numbers, Robert Denk, NAHB's assistant vice president for forecasting and analysis, noted a range of conditions across the country and differences among the states in the amount of distress suffered during the recession and the headway that is being made in recovery.
Housing nationwide bottomed out at an average of 27 percent of normal production in early 2009.
The hardest hit states where production soared to unsustainable levels during the boom years - California, Nevada, Arizona and Florida - bottomed out at 10 to 20 percent of normal when the housing bubble burst. In sharp contrast, better states that did not experience a huge production run up during the boom declined to 50 percent of normal production.
"We've now gotten past the point where we are digging out of holes and repairing the carnage of the housing markets," said Denk. "It's no longer about the boom and the bust. Now it's about the underlying [state and regional] economies and how that is supporting the housing recovery."
For example, while Texas and Florida have roughly the same number of mortgages, Florida had nearly five times as many foreclosures during the height of the downturn and today has less than double.
Now that housing has entered a new stage in the healing process, local economic conditions are dictating the pace of recovery. "That's why the bubble states are no longer in the bottom tier and have moved ahead of the industrial Midwest," he said.
The gradual and steady housing recovery now underway across the land will bring nationwide housing starts to 71 percent of normal by the fourth quarter of next year and 93 percent of normal by the end of 2015, Denk said.
Leading the way will be oil and gas producing states Texas, Oklahoma, North Dakota, Louisiana, Wyoming and Montana; and Iowa, supported by agricultural commodities.
In another way of looking at the long road back to normal, by the end of 2015 the top 20 percent of states will be back to normal production levels, compared to the bottom 20 percent, which will still be below 84 percent.