If the builders, product manufacturers, and investors listening Thursday to the National Association of Home Builders Spring Construction Forecast in Washington, D.C., weren’t feeling glum enough about the state of housing, new-home sales data was released during the conference by the United States Census, and the results were worse than feared.
New-home sales are down 8.5 percent from February and the months’ supply of new-homes rose to 11 months, a record-high, NAHB chief economist David Seiders told the several hundred audience members in attendance at the NAHB’s headquarters to a chorus of subdued groans and whistles.
And those numbers (http://www.census.gov/const/newressales.pdf) do not count cancellations, which many large builders are seeing at levels of up to 40 percent of sales. In other words, there is far more inventory of new homes than just 11 month’s worth, especially as home sales continue to decline.
After talking up the urgent need for housing demand to return in late 2008 and early 2009, in order to prop up the economy after the impact of the Bush Administration’s fiscal stimulus plan wears off in early 2009, Seiders noted the latest new-home sales data was disappointing.
“These moves are so large, there’s no doubt that the new-home market is still deteriorating through at least March, and that’s really bad news,” Seiders said.
Nariman Behravesh, chief economist for Global Insight, said Thursday that total financial losses from the subprime mortgage mess would be about $400 billion, but that only $250-$280 billion of that has been declared so far. That means there may be as much as another $150 billion in losses to come.
“There will be more bad news, and it could create a revisitation of this crisis, but it’s probably the case that the worst is over,” Behravesh said.
Still, housing is far from a recovery, he said. Consumer spending has slowed to a trickle in the first half of 2008, but will likely pick up with the fiscal stimulus’ tax rebates, then will likely trail off again, creating a “W”-shaped recovery, Behravesh said.
“What these rebates are doing is pulling growth forward from next year to this year,” he said.
And if energy prices continue to rise, the fiscal recovery may be undermined, Behravesh said.
Even without rising energy prices, consumers are facing the hardship of watching the value of their houses shrink to the point that their mortgage is now worth more than their home. Mark Zandi, chief economist for Moody’s Economy.com, said Thursday that 8.8 million home owners are now in just that negative equity position, and that number could rise to over 12 million without federal intervention.
And today’s American doesn’t have the savings to weather the storm, Zandi said.
“If there is any disruption to their income, they’ve got a real big problem,” he said, pointing out that major disruptions in income used to be if somebody lost their job, or there was a divorce or death in the family. Now, needing to replace a hot water heater is the equivalent, because people do not have the excess cash. “They are living on a tenuous financial edge, and they are going to end up in foreclosure, and add to that mountain of inventory.”
And consumers owe far too much money to creditors, with over $700 billion of debt (of all kinds, not just mortgages), in default or delinquency, Zandi said.
“That has more than doubled in the last couple of years, and that’s putting a lot of stress on the system,” he said.
Zandi, now an advisor for Senator John McCain’s Presidential bid, also pitched a three-pronged plan to save housing. First, a temporary tax credit for buying a home. Second, the Federal Reserve could hold reverse auctions for banks to allow credit to flow more cheaply, and so more freely to help the housing market regain its footing. Third, a mortgage write-down plan to save home owners from falling into foreclosure could be enacted.
“In times of crisis, we should use the triple-A credit of the United States,” Zandi said. “If they don’t, (the economic trouble) is not going to be short, it’s going to be a rather painful, prolonged downturn that extends through the rest of the decade.”
Zandi projects new-home sales to bottom in the second quarter of 2008, over 30 percent below their peak levels from the boom. New-home starts are likely to bottom in the second half of 2008 more than 60 percent below their peak level. Home prices will likely finish about 24 percent below their peak levels, and likely not until the second half of 2009, Zandi said.