Miami Could Be the First Hot Market to Land With a Thump
Some of the nation’s hottest housing markets will experience some bumpy corrections as the industry as a whole recedes to more sustainable, but healthy levels of activity, according to economists at the NAHB Construction Forecast Conference in Washington, D.C. last month.
Miami, Fla. is the most “overvalued market in the country” and could very well be “ground zero” for the unwinding process that could deliver a thump to some overheated local markets at the same time as the industry as a whole glides in for a “soft landing” this year, panelists said.
The markets where Mark Zandi, chief economist for Moody’s Economy.com, anticipates the most significant corrections — defined as more than a 10% peak-to-trough decline in housing prices — are in the Northeast, the Mid-Atlantic, Florida, California, Las Vegas and parts of Arizona. (See list of markets to watch below.)
These markets will “correct, not crash,” Zandi said, because they have sturdy job markets, well-capitalized intermediaries and were only moderately overbuilt during the boom years.
“Builders did a pretty good job of matching supply and demand,” he said, but “some reduction in the level of construction” is warranted and will help head off the longer-term potential for a severe slowdown.
Australia and the United Kingdom, which have managed to weather a transition from their housing boom times without undue calamity, provide a reliable indication of what builders here should expect. “The housing markets were as juiced up there as here in the U.S., and they had soft landings,” he said.
However, Zandi pointed out that there were still reasons to be wary of a potentially more severe slowdown here in the unlikely event that the general economy begins to falter. “Housing’s tentacles go deep into the economy,” he said, “deeper than many people think.”
Zandi also noted that housing’s high sensitivity to shifts in interest rates will become increasingly apparent the longer the Federal Reserve continues driving up those rates by quarter-point increments. “Any fundamental rise in interest rates will bite hard,” Zandi said, and “the rise will lock out two key groups that are important to local and regional markets: first-time home buyers and investors.”
Investors have something valuable to contribute to the long-term vitality of local markets because they aren’t just buyers whose aim is to “flip and get out,” but include second home buyers, boomers seeking retirement homes and others who are in it for the long haul.
Another cause for concern, Zandi pointed out that there are a substantial number of borrowers at risk of defaulting on mortgages that are for amounts exceeding the value of their homes. “We will see defaulting and foreclosures,” he said.
Taking a regional look at the state of the housing industry, Bernard Markstein, NAHB’s director of forecasting, said that there are significant variations in the forces driving housing demand, including home prices, population growth, household formations and jobs.
Immigration, shifts in population patterns, energy prices, large-scale natural disasters such as Hurricane Katrina and an area’s appeal as a second home location are among other factors that will continue to generate somewhat different housing outlooks for different parts of the country.
Markets on Alert
Potential for More Than 10% Peak-to-Trough House Price Declines
(Markets with largest predicted declines in bold type.)
- Arizona — Phoenix, Flagstaff, Prescott, Tucson
- California — Bakersfield, Chico, Fresno, Hanford, Los Angeles, Merced, Modesto, Napa, Oakland, Oxnard, Riverside, Sacramento, Salinas, San Diego, San Jose, San Luis, Santa Ana, Santa Barbara, Santa Cruz, Santa Rosa, Vallejo, Visalia
- Connecticut — Bridgeport, Norwich
- Florida — Miami, Orlando, Cape Coral, Deltona, Ft. Lauderdale, Fort Walton Beach, Gainesville, Naples, Pensacola, Port St. Lucie, Punta Gorda, Sarasota, Tampa, Vero Beach, West Palm Beach
- Midwest — Chicago, Detroit, Lansing, Minneapolis, Warren
- Maryland — Baltimore, Bethesda
- Massachusetts — Barnstable Town, Boston, Cambridge, Essex
- New Jersey — Atlantic City, Ocean City, Edison, Newark, Trenton
- New York — New York City, Nassau
- Rhode Island — Providence
- Nevada — Las Vegas
- Pennsylvania — Lancaster
- Washington, D.C.
Source: Moody’s Economy.com
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Seiders Says, 'Builders Have Not Lost Touch With Demand' on the NAHB Economics Blog
NAHB Chief Economist David Seiders says that "builders have not lost touch with demand" on NAHB's economics blog, “Seiders on Housing” — an informal Internet-based forum dealing with economic issues, housing trends, survey research and other topics affecting the housing sector of the economy.
Log onto the blog at http://nahbblog.blogs.com and get direct access to Seiders' expert opinions, projections and responses. Then let Seiders know what you think by giving your perspective.