National Association of Home Builders chief economist David Seiders has downwardly adjusted his forecast for the housing market once again. Seiders, who gave his mid-year housing forecast in a conference call Wednesday, sees the current housing market as weaker than just six months ago, cutting his total housing starts projections further to 1.42 million for 2007 and 1.45 million for 2008.
Seiders believes the home building recession will end in the later part of the fourth quarter of 2007 or in early 2008. Seiders, however, does not think total housing starts will get back to a sustainable level of 1.95 million units until 2010 or 2011.
He projects single-family starts to level off at 1.1 million in the fourth quarter of 2007 and build back to 1.5 million units in 2010 or 2011.
In essence, the forecast is for a slow recovery.
"We have the bottom of this housing cycle poised around the end of this year or early 2008," Seiders says. "Maybe small growth in 2008 for most things. But downside risks are definitely worth keeping in mind."
There are still problems in the mortgage lending markets - from tightening standards, homeowners in financial straits with mortgages they can no longer afford, to growing numbers of foreclosures - that could cause his forecast to erode even more, Seiders says.
"We're still dealing with those problems, and it does create massive uncertainties about where we're going," he says.
Seiders says that much of the unsustainable housing boom - marked by record home sales and house price appreciation -- of 2003 through 2005 -- was provoked by, "overly aggressive monetary policy stimulus back from the middle of 2003 to 2004. The Fed may have made a bit of a policy mistake back then."
That left the market with affordability problems and a historically high inventory overhang, particularly in vacant for-sale housing, both new and existing, "the kind of dimensions we never had to deal with before," Seiders says.
The recovery will take such a long time because the usual stimuli to boost housing out of its funk are not present. There is no likely cut in interest rates, for example.
Seiders began 2007 by projecting the Fed would cut its target rate in August; now he does not see the Fed cutting its target rate in 2007 or 2008. There also is no surge in job growth. A typical housing recession is overcome by one of these two factors. Neither is present today nor on the horizon, Seiders says.
Seiders agrees with the S&P Case/Shiller repeat sales house price index that suggests 8 percent to 10 percent house price depreciation from peak to trough.
"We're going to need that to help get these markets back in balance," Seiders says, noting that affordability is still elusive.
From the NAHB's own monthly survey of builders, Seiders says it's clear that they too are cutting prices, with two-thirds of builders saying lowering prices has helped sustain sales.
To view the charts accompanying Seiders' mid-year housing forecast, go to www.nahb.org/generic.aspx?genericContentID=68561.