The theme for Wednesday’s NAHB semi-annual construction forecast conference was a contradictory mix of hope and despair.
On one hand, economic and housing experts told a crowd of several hundred builders, manufacturers, and bankers to be alarmed because economic conditions continue to deteriorate and won’t improve for some time.
On the other hand, the same economists offered encouragement to attendees, with NAHB chief economist David Seiders telling attendees that sales of new single-family homes will start shooting up as early as 2009. As home prices have plummeted, affordability has “perked up,” Seiders said. He asserted that there is “some pent-up demand building” and that a $7,500, 15-year interest-free loan from the federal government (included in this summer's housing rescue legislation) should convert housing demand into home sales in the coming months.
Overall, the NAHB forecast presented was mixed. Seiders acknowledged that home sales, which have been falling since their 2005 peak, still suffer from “downward momentum” and decreasing demand. This is “worrisome,” Seiders said. He also noted that credit is tightening for construction loans, which, “will become an increasing problem for some time.”
Of course, Seiders noted, making projections for any economic marker in the current global financial tumult is very risky. “Things are a lot worse than any of us anticipated six months ago,” Seiders said, before pointing out that an unprecedented level of uncertainty in the economic fundamentals has pushed his own confidence in his forecast to just 60 percent. “Momentum is still definitely downward.”
Yet Seiders, who projects negative economic growth for the second half of 2008 and the first quarter of 2009, said he expected economic recovery to begin in next year's second quarter, and for the economy to return to “good economic growth” by 2010. Seiders and other economists agreed that the Federal Reserve is likely to lower the federal funds target rate another half-percentage point in 2008 to 1.0 percent, which will ideally free up credit and boost economic growth.
The NAHB's top economist projects new single-family home sales to bottom in the fourth quarter of 2008 at a seasonally-adjusted rate of 450,000 units, before rebounding to a seasonally-adjusted rate of 600,000 by 2009's end. Finally, new-home starts will bottom at 740,000 units in the first quarter of 2009, growing to 835,000 units by the end of 2009, and to 1.1 million by the end of 2010, Seiders said.
Maury Harris, chief U.S. economist at UBS, also presented his forecast for housing during Wednesday’s conference, calling for a bottom in home starts at 780,000 units in 2009. He said new-home construction and sales will increase even as unemployment increases, because builders “don’t have to convince everybody to buy a house,” just some people. Builders, he said, needed to market their homes' affordability.
The economists agreed that home prices are still falling, but the degree to which home prices will fall further ranges from just a few percent to more than 10 percent.
Michael Moran, chief economist at DAIWA Securities, said during his presentation that while many economists consider falling oil and gasoline prices as a consumer boon, energy prices are still high compared to historical norms. Therefore, any decrease in such energy prices should not necessarily be counted as positive for the economy.
Because of high energy prices and drastically low consumer confidence readings, consumers will not run out and spend even as the economy recovers. “You won’t see vigorous consumer spending for a long time,” said Moran, who believes the global economy is currently in recession. But he still expressed hope for the future. “We survived the savings-and-loan crisis, we should be able to survive this crisis in the housing market,” he said.
Seiders seemed to agree. While he said he has heard from a number of economists questioning his outlook, he said he was not backing off his suggestion that housing will recover in 2009, despite "a big pile of downside risk."
Then he told the crowd some good news: “We may start serving cocktails early today."
Ethan Butterfield is senior editor, business, at BUILDER magazine.