Oct. 2 (Bloomberg) -- The U.S. housing market is unlikely to recover soon from the worst slump in 16 years, according to Michael Milken, the junk bond billionaire turned philanthropist.

It will be ``quite a while before we have a robust housing market again,'' Milken said in an interview today. ``The idea that any loan against real estate is a good loan has never been a rational thought.''

The ``basic assumption'' that home prices will continually increase is wrong, said Milken, chairman of the Milken Institute, an independent economic think tank based in Santa Monica, California.

Pessimism about the housing market is growing as prices fall and demand declines. Sales of new homes tumbled 8.3 percent in August to the lowest in more than seven years and prices dropped the most since 1970, the Commerce Department in Washington said last week.

Fannie Mae Chief Executive Officer Daniel Mudd said last week that the housing slump will last beyond next year.

``We don't think we hit a bottom until the end of '08 and then we have some period of time to work our way back up again,'' Mudd said in an interview. Fannie Mae, based in Washington, is the largest source of money for U.S. home loans.

The U.S. economy will withstand the slide in housing, propelled by global growth, said Milken, 61, the former high- yield bond chief from Drexel Burnham Lambert Inc.

Global Effects

``Today the strength of the world's economy is helping America and the United States, and I think that will soften the blow of our downturn in housing,'' he said. ``We have to realize, similar to the time of Galileo, that the whole world is not necessarily revolving around the United States and the amazing story of America.''

Milken received a 10-year prison sentence in 1990 and paid $1.1 billion in criminal and civil fines after pleading guilty to securities violations. For the past decade, Milken has focused on philanthropy and run the research institute, which seeks ways to generate capital for people around the world.

``I am personally pretty optimistic the economy remains strong,'' Milken said.

He spoke in Washington today about a new Milken Institute study forecasting the financial impact of chronic disease on the U.S. economy. The study found that the U.S. loses $1.1 trillion a year because chronically ill workers take sick days or don't perform satisfactorily at work while they're not well.

``The most important asset and the largest asset category in the United States or any country is human capital,'' Milken said. ``The cure of cancer is worth $45 trillion to the U.S. economy. The elimination of heart disease as a cause of suffering and death is worth almost $50 trillion to the U.S. economy. The solution to those two problems far outweighs any other economic discussion which we could have today.''

To contact the reporters on this story: Kathleen Hays in New York at khays4@bloomberg.net; Caroline Salas in New York at csalas1@bloomberg.net

Last Updated: October 2, 2007 16:31 EDT