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Starts Need to Slow Further to Stabilize Housing Market
 The slowdown in housing production that began in early 2006 is only just beginning to make a dent in the large inventory of unsold homes, and total starts will need to drop at least another 15% before the market starts to stabilize, Eric Belsky, executive director of the Joint Center for Housing Studies at Harvard University, said at NAHB’s Spring Construction Forecast Conference in Washington, D.C. last week.
Belsky stated that even if the rate at which homes are being built does not slow further, total housing starts will fall to 1.51 million units this year, with single-family construction posting a 19% drop to 1.2 million. New home sales will decline 12% to 925,000 and existing home sales will slip below 6.5 million.
“The near-term risks are weighted to further slowing from tightening credit standards and a large inventory overhang that is still not worked off,” he said.
Belsky based his predictions on an estimated overhang from the 2003 to 2005 housing boom of about 500,000 units. If the inventory turns out to be higher, he said, production activity in the near term will have to be proportionately lower.
He said to look to Phoenix, where the job market is strong, to see the impact of slower housing production on the excess inventory. Additional bellwether markets worth watching are Las Vegas and Washington, D.C.
All types of non-prime lending surged from just over 20% of the total market share in 2003 to more than 45% in 2005, Belsky said. The share of originations of “affordable” mortgage products, including interest-only and negative amortization loans, spiked from about 10% to well over 30% during this period, he said.
At the same time, mortgages in foreclosure or delinquent for 60 days or more have shot up sharply, from about 350,000 in 2003 to 800,000 by the end of last year.
“While troubled prime loans are holding steady, troubled subprime loans are increasing,” he said, resulting in more homes returning to an already glutted market.
“Single-family overbuilding is now the key threat to house prices and starts,” said Belsky.
As builders work to reduce inventories by cutting prices and offering other sales incentives in the near-term, Belsky sees housing production bouncing back to a solid, sustainable level down the road as immigrants and their families add dramatically to housing demand.
With the baby boom generation continuing to mature, Belsky predicted that demand for second homes will jump by about 750,000 units from 2005 to 2015.
“Total production should average about 1.95 million units per year during this 10-year period, or perhaps a bit less as the inventory must be worked off,” he said.
Remodeling Slowdown Slowly Emerging
Belsky also warned of an emerging slowdown in remodeling. “Remodeling generally lags behind changes in home building,” he said.
He pointed to the drop in NAHB’s Remodeling Market Index, a survey of remodelers’ activities and future expectations, as well as the drop in quarterly retail sails of building materials and existing home sales as reasons for the slowdown.
He also warned of possible house price declines, which would adversely affect remodeling activity.
“House price appreciation is strongly associated with remodeling spending,” Belsky said. “The more a home appreciates, the more people are willing to spend on their homes. The reverse is also true.”
Photo by Morris Semiatin
 Construction Forecast Conference Now Available on the Internet
The simultaneous Webcast of the Construction Forecast Conference — Spring 2007 held in Washington, D.C. on April 26 is available for purchase for the next three months.
Those interested can purchase the conference Webcast, which includes panels of nationally recognized experts discussing economic trends, government policies, developments in the housing industry and the results from NAHB's recent surveys.
Purchasers will receive unlimited access to the Webcast archive for three months, as well as electronic copies of the conference handouts and presentation material. Purchasers can watch at their own pace, rewind, fast forward and review important sections.
To Purchase the Webcast
To purchase the Webcast, visit www.nahb.org/cfcwebcast.
 Want to Know Your State’s Starts Forecast for 2008?
Find out in HousingEconomic.com’s State Starts Forecast (sample). The starts forecast includes downloadable Excel tables of total, single-family and multifamily starts by region and state.
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 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.
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