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Housing Downturn Could Be Entering Roughest Stretch Yet
 The three-year-old slump in the nation’s housing industry could be entering its roughest stretch yet if policymakers in Washington don’t soon find a way to end rising foreclosures and the ongoing downward spiral in real estate values, analyst Ivy Zelman, of Zelman & Associates, told NAHB’s Housing Forecast Conference last week in Washington.
Unlike most of the panelists at the conference who predicted that housing is gearing up for a slow turnaround early next year and that the financial crisis will soon start to wind down, Zelman said that “it’s going to get ugly.”
With consumers reluctant to buy homes in the current economic environment unless they absolutely have to, “I think we’re really in a lot of trouble and there’s no easy way out,” Zelman said.
The $750 billion troubled asset relief program being implemented by Treasury Secretary Henry Paulson is focused on preventing an economic catastrophe, she said, and “it is not for housing. We now need a new recipe for housing.”
A $15,000 to $20,000 tax credit for home buyers would be good to help “kick start” home buying, Zelman said, but it doesn’t address the bigger problem of the one million foreclosed properties that will be in the hands of banks.
Losing 1% to 1.5% of a home’s value every month they hold it, banks will keep lowering the price until they sell the property, she said, and the more distressed sales on the market, the worse the downward spiral in housing prices will become.
Builders have been competing head-to-head with foreclosures, she said, and there has been a steady drop-off in sales per week per neighborhood since July and August that has grown precipitous in recent weeks. In Las Vegas, for example, there were some 600 to 700 new homes sold in July and in August; in October so far there have been about 60.
Zelman estimated that there are now 1.4 million vacant homes for sale, and foreclosures are adding steadily to the glut. “Until we absorb the inventory, there will be a continued downturn,” she said.
Existing home sales have been showing some stability, she noted; 50% of the homes sold have been foreclosures, and 50% to 70% of those are being purchased by investors who return them to the market as rentals, putting downward pressure on rents.
While consumers have now grown reluctant to buy homes, she said, mortgage financing is readily available. “The FHA (Federal Housing Administration) has exploded,” Zelman said. “Anyone can get it. It’s the new subprime,” with a 3% downpayment requirement, rising to 3.5% next year, and easier credit score and debt-to-income requirements than currently available on loans that can be sold to Fannie Mae and Freddie Mac.
Even as sales bottom out sometime next year, Zelman said, builders who want to start new housing may find themselves in a bind unless today’s credit crunch on loans to produce new housing has eased. Currently, “you can’t get funding for builders, even those who were making money and doing well” before the financial markets froze up, she said.
Zelman said that her official housing starts forecast for 2009 is 750,000 units, but the way things have been going, it could be closer to the 500- to 600-unit range.
Photo by Morris Semiatin
 Want to Know the Housing Forecast for the Top 100 Metros?
Find out in HousingEconomic.com’s 2008 to 2009 Metro Forecast (free preview).
Get the metro forecast with in-depth analysis, overviews and downloadable Excel tables.
To learn more, visit www.HousingEconomics.com.
 Free NAHB Kit Gives Builders Back-to-Basics Tips to Navigate the Slowdown
What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn.
To help members navigate the uncharted waters of this slowdown, NAHB has compiled a comprehensive “Back to Basics” online toolkit — the best of the basics, the tried and true and the truly new. To access the toolkit, click here.
To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar.
For assistance, call the NAHB Member Service Center at 800-368-5242.
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