HARTFORD, Conn (Reuters) - The housing market is headed for its worst performance in 50 years, and the drop in home prices could accelerate if the economy weakens, Boston Federal Reserve President Eric Rosengren said Tuesday.

He said previous downturns in the mortgage sector were generally associated with hard economic times, although he steered clear of predicting a recession.

“History may or may not repeat itself,” he told an audience of industry executives at a meeting of the Connecticut Business and Industry Association.

“My view is that the continued decline in residential investment has heightened the risk of a more significant downturn in the overall economy,” he said.

Noting that prices have declined substantially even in a relatively benign economic environment, he said it was possible that they could fall more rapidly should economic performance not remain strong in 2008.

On the positive side, Rosengren noted that the current housing debacle has taken place amid a relatively stable labor market, although he observed that Friday’s disappointing jobs report could signal a shift.

The data showed employment was almost at a standstill, with the unemployment rate jumping from 4.7 percent to 5.0 percent.

Such readings have heightened speculation that the Fed might cut interest rates by as much as a half percentage point later this month.

Rosengren outlined some of the effects of the mortgage meltdown on the financial markets including the effects of derivative securities, saying that past experience suggests prompt recognition of losses would be optimal.

He took a swipe at those who had said the events currently underway could never take place.

“On our list of New Year’s resolutions, I would include not listening to pundits who claimed 1. that housing prices could not go down nationally, 2. that triple-A ratings meant no default risk and 3. that calculating fair market value was easy for mortgage products.”

He drew on the experiences of New England and Japan to argue that coming to terms with losses was a painful but necessary process.

Financial markets have been severely hampered in recent months by a growing mistrust among banks over who might hold what mortgage-linked securities. Wall Street banks have announced tens of billions of dollars in writedowns, but many worry there is more to come.