Housing Stimulus Needed as Downside Risks Pile Up
Congress should consider providing further “sorely needed” economic stimulus to encourage homeownership and limit foreclosures in order to pull the U.S. economy out of recession, NAHB Chief Economist David Seiders said at the association’s Fall Construction Forecast Conference in Washington, D.C. on Oct. 22.
The steep decline in sales of new single-family homes should be coming to an end in early 2009, Seiders said, setting the stage for “tepid” improvement in new residential construction later that year. However, he warned, that outcome has grown increasingly uncertain in light of the turmoil that has gripped world financial markets.
“Things are a lot worse than any of us had anticipated six months ago,” Seiders said, and the nation’s housing market — which is the root cause of the collapse in confidence among lenders — has continued to spiral downward. “Risks are piling up on the down side. These are tough times, no question,” he said.
While remaining reasonably optimistic that a housing recovery is beginning to take shape, “the uncertainties out there are unprecedented,” Seiders said, and there is a growing risk that today’s major housing contraction could get even worse.
The level of confidence among builders surveyed in October for the monthly NAHB/Wells Fargo Housing Market Index fell to the lowest point since the series was started in 1985, he noted.
“The bottom line is that the financial crisis can’t get much better until the thing that started this thing off, housing starts, gets better,” said Maury Harris, U.S. chief economist for UBS, who also spoke at the conference.
On the brighter side, Seiders said that housing in the first half of 2009 should be helped by the $7,500 tax credit available to first-time home buyers; legislative efforts to address foreclosures; the continuation of affordable mortgage rates; and the availability of fixed-rate mortgage financing through Fannie Mae, Freddie Mac, the Federal Housing Administration and the Department of Veterans Affairs.
Citing an increase in pent-up demand for housing, he added that declines in home prices and increases in personal income have helped to restore housing affordability to the more normal levels that existed prior to the peak of the housing boom.
However, even as the demand for housing begins to grow, housing production will be constrained by tighter credit for the loans builders and developers need to break ground on new residential projects, he said.
NAHB is forecasting 936,000 total housing starts for 2008, a 30.2% decline from the 1.34 million homes produced last year. Starts in 2009 are projected to slide 16.2% further, to 784,000 units, and 2010 would bring production up to the 1.0 million level.