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Stable Home Sales Provide Early Sign of Road to Recovery
With help from the Congress and an accommodating policy from the Federal Reserve, the housing industry will begin its recovery in the second half of this year, according to an NAHB year-end housing forecast teleconference.
"I think the best bet is that 2008 is the year we will be looking at the bottom for various components of the housing market," said NAHB Chief Economist David Seiders.
"We are in a down time, and many markets that overheated during 2003 to 2005 such as Las Vegas, Phoenix and Miami are undergoing a natural correction," added Jerry Howard, the association’s executive vice president and CEO.
"But all housing is local,” Howard said, “and the reason we think that the market will stabilize and come back is because many smaller markets that did not experience overheating are still performing at a relatively healthy level. If you balance those markets against those that are undergoing major corrections, we see a solid recovery down the road."
Seiders, who projected slow economic growth for 2008, said his forecast assumes that the economy avoids recession, Congress passes key reforms to address the subprime lending crisis and the central bank remains ready to step in if needed to keep the economy moving forward.
Seiders said that the NAHB/Wells Fargo Housing Market Index, which predicts demand for new single-family home sales, had stabilized at low levels during the past three months, which is an indication that "we are now approaching the bottom of home sales activity, and we anticipate a recovery in sales beginning in the second quarter of 2008."
Stabilizing sales is key to turning around housing production, he said. Housing starts peaked in the first quarter of 2006, and he expects them to bottom out in the second quarter of 2008, registering a 55% decline from peak to trough levels of activity.
"As sales begin to improve, this will whittle down excess inventory, allowing the production of new homes to begin moving forward in the latter half of 2008," he said.
To help support the start of a housing industry recovery this year, Howard said that Congress must act quickly to pass legislation to modernize the Federal Housing Administration and to reform Fannie Mae and Freddie Mac so that they can play a larger role in restoring stability in the mortgage markets.
Doing the Right Thing
"I am happy to report that policymakers have been doing the right thing," said Howard. He cited three consecutive interest rate cuts by the Fed, the Administration’s “Hope Now” and “FHASecure” initiatives to limit home foreclosures and a new law enabling home owners to pursue mortgage debt forgiveness without facing adverse tax consequences.
While these are all positive developments, Howard said that Congress still has plenty of unfinished business that must be attended to.
He called on lawmakers to move promptly to reconcile competing bills in the House and Senate that would allow the FHA to provide a viable alternative to the subprime market by increasing its loan limit for high-cost markets and providing flexible downpayment requirements.
He also urged the Senate to act on companion legislation to House-passed bill H.R. 1427, a measure that would reform government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
"GSE reform would help to provide much-needed liquidity in the jumbo loan marketplace by raising the conforming loan limit in high-cost areas, allowing Fannie and Freddie to purchase more mortgages in these markets," said Howard.
The long-term demand for housing also provides builders with reason for optimism as they look beyond the current market correction, he said.
A recent report from Harvard University's Joint Center for Housing Studies found that even with the large inventory of unsold homes on the market today, the long-term demand for conventional housing units will run at a strong average annual clip of 1.82 million between 2008 and 2014.
The Harvard report concluded: "Do not mistake short-term reactions to the housing slowdown as a harbinger of things to come for the long term. On the strength of demographically-driven demand for housing, the market will bounce back from its currently suppressed levels."
Still, the fragile housing market and economy show that policymakers must remain vigilant in 2008.
"NAHB applauds Treasury Secretary Paulson, HUD Secretary Jackson, federal policymakers and the Congress for their actions so far," said Howard. "Recent weeks have shown that when our elected officials understand the severity of a problem, they can get past partisanship and do the right thing. We hope that trend will continue."
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