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Housing
Expected to
Improve as the
Year Progresses
Article
Date - Feb.16.2007 |
|
2007
- It is only
a matter of
time before
housing begins
to recover from
its first major
downturn in
about 15 years,
said industry
economists speaking
last week at
the International
Builders’
Show in Orlando,
Fla., and fundamental
improvements
in the marketplace
could already
be taking hold
by this year’s
second quarter.
“We knew
we were in a
correction process
a year ago,
and it was an
inevitable occurrence
following the
unsustainable
boom years of
2004 and 2005
when stimulative
financing conditions
and speculation
from escalating
home prices
resulted in
a ‘grossly
overheating
market,’”
said David Seiders,
chief economist
for the National
Association
of Home Builders
(NAHB). “Indeed,
the downward
movements in
sales and starts
were even deeper
in 2006 than
expected.”
Even though
Seiders said
that he expects
starts to begin
a “gradual
recovery”
following further
erosion during
this year’s
first quarter,
total housing
production for
2007 is projected
to slip a further
14.2 percent
to 1.560 million,
and single-family
starts for the
year are expected
to decline 15
percent to 1.256
million.
New single-family
home sales were
down 16.4 percent
in 2006 but
apparently stabilized
by the end of
the year. Sales
are projected
by NAHB to decline
only 1.3 percent
in 2007 as activity
rises gradually
during the year.
Supporting an
upward turn
in new home
sales, Seiders
said, is today’s
“Goldilocks
economy,”
which appears
poised to sustain
healthy levels
of growth in
Gross Domestic
Product, jobs
and income while
core inflation
recedes from
levels that
have been worrisome
for the Federal
Reserve Board.
“The interest
rate structure
should be supportive
of housing throughout
this year,”
he said.
While housing
should be moving
up before long,
Seiders cautioned
that it will
be a couple
of years before
the industry
reaches the
2 million annual
construction
pace (including
150,000 manufactured
homes) that
is sustainable
over the long
haul, the result
of serious overbuilding
during 2004
to 2005.
Agreeing that
the housing
market probably
has seen the
worst of the
current slump
in starts and
sales, David
Berson, chief
economist of
Fannie Mae,
and Frank Nothaft,
chief economist
of Freddie Mac,
said that they
don’t
expect to see
the beginning
of an upturn
materialize
until a quarter
or two behind
Seiders’
forecast, with
gradual improvement
likely in this
year’s
second half.
The housing
affordability
woes that reduced
housing demand
last year now
seem to be bottoming
out as incomes
rise, home prices
moderate and
mortgage interest
rates remain
at favorable
levels, said
Berson, and
he further noted
that housing
demand won’t
be a negative
for the industry
this year, and
could be a small
positive.
“There
is still a bit
of a rocky road
and bumps ahead
of us,”
said Nothaft,
but builders
“are seeing
some light at
the end of the
tunnel.”
High housing
prices have
become the decisive
factor behind
the slowdown,
he said, and
“it will
take time for
affordability
to improve.”
Nothaft added
that national
data have obscured
local trends
and there are
some markets
where home sales
and price appreciation
are “holding
up well,”
particularly
in much of the
South. On the
other hand,
some markets
– such
as California,
Florida, and
Massachusetts
– have
seen their business
erode by 30
percent.
While single-family
activity will
improve as the
year progresses
and into 2008,
“we won’t
see a recovery
in areas where
the local economy
is in recession,”
Nothaft said,
such as Detroit
and parts of
the Midwest. |
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