If the nation’s housing forecasters agree that housing starts and sales will drop to record lows this year, they also believe that the nation will see a sizable pickup in activity next year.
Going into 2009, many economists were at a loss to predict what might happen to housing starts and sales, though the consensus was that the market would find a bottom. They found it difficult, if not impossible, to predict with any accuracy how quickly the federal government could restore the banking system, whether a viable economic stimulus program would be enacted, and what impact unprecedented declines in home values would have on potential buyers.
As we round the halfway curve for 2009, housing economists still have questions about overall economy. But they say they can see the light at the end of the tunnel, and it’s not a train coming in the opposite direction. The consensus view is that, despite some startling job loss, the overall economy will rebound later this year. That should lead to an improvement in new-home sales and starts, with sales recovering before starts, of course.
David Crowe, the NAHB’s chief economist, told the NAHB Board of Directors last month that single-family housing starts are likely to fall 39% this year to a paltry 379,000. But he expects them to increase to 517,000 next year, a 36% increase, as the overall economic improves. Crowe believes that the economy will grow during the second half of the year as stimulus spending begins to have an impact.
Frank Nothaft, the chief economist at Freddie Mac, sees steady improvement in annualized housing starts starting in the fourth quarter of this year. His latest forecast is for a whopping 57% increase in housing starts next year, which is much more optimistic than Crowe’s. Nothaft remains encouraged by signs in the housing market. “Inventories of homes-for-sale are slowly retreating from their recent record levels in many areas,” he wrote in a recent forecast. “Home sales pickup has occurred in many (but not all) states over the past year.”
Though many of the sales are distressed, “nevertheless, that indicates that there are ready buyers at current prices, and these distressed sales do clear out the stock of for-sale homes,” according to Nothaft. “The consistency of the improvement hints that these markets may have reached their bottom. Home prices tend to lag in a recovery, but even here we are starting to see the seeds of turnaround. Price declines over the first quarter of 2009 slowed in Arizona, California, Michigan, and Florida, according to the Federal Housing Finance Agency’s purchase-only home price index.”
Nigel Gault of IHS Global Insight, the international economic consulting firm, is calling for an increase in housing starts next year of a similar magnitude—53%. In his forecast, housing starts show improvement in the third quarter of this year and rise steeply through 2012.
“Most key indicators of housing activity (home sales, housing starts and permits) are showing signs of stabilization, at least for single-family units, based upon dramatically improved affordability—for those who can qualify for credit,” according to Gault. “Even though there will be a delay after housing starts hit bottom until residential construction spending starts to rise, the latter should occur by year-end.”
Mark Zandi, chief economist for Moody’s economy.com, believes the housing rebound will be slower. “Housing will not be an early source of growth in this recovery,” he said in a conference call last week. “That’s very different from past recoveries,” when housing has typically been a leading indicator of economic growth.
Nevertheless, Zandi predicts that by the fourth quarter of next year, total (single- and multi-family) housing starts will return to an annualized pace of 1 million units. They will reach an annualized level of 1.6 million units by the fourth quarter of 2011. “Once we work through the impediments to demand, I do think we’ll see a substantial pickup in economic activity in 2011 and 2012,” he said.
Nearly every housing forecaster remains concerned about problems that could derail future growth. NAHB’s Crowe, for instance, remains concerned about a dramatic increase in the number of mortgages starting foreclosure, and a record 2.2 million excess, vacant homes on the market for sale or for rent.
Gault frets about the strength of the economic rebound. Though GDP should turn positive later this year, “in the second half of the year, the inventory cycle will begin to turn, and we expect to see GDP moving higher. But a rapid recovery is not in prospect, after so extreme a financial shock. The unemployment rate is not likely to peak until sometime in the first half of 2010, at around 10.3%.”
Zandi worries that if home prices continue to fall and foreclosures continue to rise, the recession may linger. “This is the one I am most worried about,” said Zandi, who is concerned that the Obama foreclosure mitigation efforts will not be successful—or successful enough. “I am increasingly worried that these impediments [to refinancing and modifying mortgages] cannot be overcome.”
Boyce Thompson is editorial director of BUILDER magazine.
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