Housing Slowdown Will Be Felt In Most States, Say Experts
The ongoing correction in the nation’s housing markets will continue for another six months, according to Mark Zandi, chief economist for Moody's Economy.com, and will be widespread, affecting most markets of the country.
“Somewhere between 45% and 50% of the nation’s housing markets are overvalued” and can expect to see at least a moderate slowdown or decline in home price appreciation over the coming year, Zandi said at last week’s NAHB Construction Forecast Conference.
Housing affordability problems, which initiated the current market correction, are most prevalent in California, Florida and the Northeast corridor, where, according to Zandi, the average median-income family could not afford a median-priced home in this year’s second quarter.
The markets that stand to feel the housing slowdown most acutely are those previously super-hot locations favored by investors and speculators who are now pulling out, Zandi said.
Even markets that weren’t invaded by speculators may be hampered by a significant imbalance between supply and demand, he said. For example, the woes of Detroit’s ailing auto industry and its poor job market do not bode well for the area’s housing market.
Meanwhile, “areas that I think will hold up reasonably well include Texas, the Pacific Northwest and Gulf Coast markets where recovery efforts continue” following last season’s devastating hurricanes, Zandi said.
Soft Landing a Little Bumpy
The “soft landing” predicted for some major housing markets will now turn out to be “a little bumpy,” said Bernard Markstein, NAHB’s director of forecasting. And by the fourth quarter of this year, he said, all but a handful of states will be reporting significant declines in housing starts on a year-over-year basis.
Markstein anticipates a drop in starts of 10% or more in Florida, Maryland, Virginia and North Dakota, as well as Michigan, Maine, Minnesota and Washington, D.C. between the fourth quarter of 2006 and the fourth quarter of 2007, and said that more than half of all states will report declines in building permits this year of 5% or more.
By the time a full-fledged housing recovery gets underway in 2008, many metro markets will find that the demand for new homes exceeds the supply because of the sub-par production levels of 2007. Meanwhile, apartment vacancies are expected to continue heading downward, pushing up rental rates — particularly in markets that traditionally have high concentrations of multifamily units, such as Florida and New York.
In all, the two economists agreed that the long-term outlook for housing activity is fairly good, assuming that the Federal Reserve refrains from further monetary tightening and that the fallout from the housing market’s correction has only a modest effect on the economy.
“By all rights,” said Zandi, “if housing sticks to the script” and bottoms out next year with a moderate contraction in production and sales, “it will be quite therapeutic” in improving the balance between supply and demand and bringing house prices back into better alignment with incomes.
Photos by Morris Semiatin
Want to Know the Housing Starts Through 2015?
Find out in HousingEconomics.com’s Long-Term Forecast.
HousingEconomics.com includes downloadable Excel tables featuring the housing starts forecast, GDP, demographics and more.
To learn more, visit www.housingeconomics.com.
NAHB Kit Gives Builders Back-to-Basics Tips in Cooling Market
With the current cooling of the nation’s housing market expected to persist into the middle of next year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment.
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.