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Housing Upturn Will Be ‘Solid’ But ‘Not Rapid’
Although housing conditions could start looking up by later this year, it will take several years, maybe not until 2011, for production to reach its average annual sustainable level of 1.85 million units (not counting an average 100,000 manufactured homes), NAHB Chief Economist David Seiders told the NAHB Executive Board on June 5.
He made similar remarks to the full NAHB Board of Directors on June 9.
The recovery will be slower than usual, he reported, because what the housing industry is experiencing “is like no other cycle we’ve ever had,” Seiders said.
At this point in the downturn, “usually the Federal Reserve would be easing, but this time the economy is okay and the central bank won’t have to support housing,” he said. Coming out of the slump, housing also won’t be able to count on a major acceleration in employment growth.
Employment growth this year has been good, Seiders said, but not as good as the past two years, and housing appears headed for “a solid recovery, but not a rapid one. It’s a game we haven’t been at before.”
In reaction to the subprime mortgage issue, the tightening of mortgage lending standards, a deterioration on the demand side and a heavier supply of unsold inventory than expected, Seiders said he had further lowered his housing starts forecast for this year by 7% and by 10% in 2008.
For-sale and vacant housing units on the market “skyrocketed” during the second half of 2006 into the beginning of this year, he said, probably reaching the 1.4 million level. The oversupply problem has become so widespread that it is also having some negative impact on the rental side of the multifamily sector, which has been forging ahead.
Seiders forecast that housing production would be at the 1.6 million annual level by the end of 2008.
Seiders noted that Federal Reserve Chairman Ben Bernanke had recently observed that the downward housing correction is still ongoing and the drag from housing will extend further out than had been expected. However, the Fed “is still totally preoccupied on what it regards as a dangerous situation for inflation and they don’t want to suggest they are concerned about the economy because they don’t want to fuel speculation about an interest rate cut.”
While it appears that the rest of the economy has been insulated from the housing recession, “we don’t know the potential damage from the mortgage side,” Seiders said, and Bernanke could be “sugar coating a bit on the implications for consumer spending.”
Seiders said that he had taken an expected quarter-percentage-point cut in the Fed’s 5.25% federal funds rate later this year out of his forecast in light of Bernanke’s latest pronouncements.
NAHB leaders met with the Fed chairman during the association’s board meeting in Washington, D.C. earlier this month and reported that the state of the nation’s housing industry is “an increasingly complicated picture” but that the lion’s share of the decline appears to be over.
Seiders said that the core inflation numbers watched by the Fed are receding and will continue to decline, “so there will be a de-facto tightening of policy without a rate cut.”
He predicted that “if the economy doesn’t perform well, the Fed will be compelled to take action. They want to have their way on the inflation front, but they do want a decent economy.”
Spring
 Construction Forecast Conference Discussions 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 the Housing Forecast for the Top 100 Metros?
Find out in HousingEconomic.com’s 2007-2008 Metro Forecast (free preview). Get the metro forecast with in-depth analysis, overviews and downloadable Excel tables.
To learn more, visit www.HousingEconomics.com.
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