Housing Slump May Rattle Some Local Economies
Focusing on the regional and metropolitan outlooks, Moody’s Economy.com Chief Economist Mark Zandi and NAHB Director of Forecasting Bernard Markstein offered NAHB's Fall Construction Forecast Conference similar views on how the housing market slowdown is shaking out across the country.
Neither economist predicted that housing’s considerable drag on growth will actually pull the national economy into recession.
However, states that experienced the most significant run-ups in home sales, prices and production during the recent boom period will definitely be feeling a major pinch — particularly in terms of home sales and prices, mortgage delinquencies and job losses within their housing sectors, they said. Some of these trouble spots, according to Zandi, will in fact experience near-recession conditions tied to the housing slowdown.
Zandi pointed to Arizona, California, Florida, Nevada and the broader Boston and Washington, D.C. metros as those that will be most affected by the negative economic fallout from the subprime mortgage crisis. Also affected will be areas along the New Jersey coast, the Carolinas and parts of the industrial Midwest.
Regional economies in these areas, he predicted, will encounter more severe declines in construction and housing prices along with weaker consumer spending and significant job losses in housing-related businesses than other markets across the country.
Hottest Boom Areas to Bottom Out in Late 2008
Places that are experiencing the most significant weakening of economic activity at present include Phoenix, parts of central and southern California, Las Vegas and Reno, Nev., as well as parts of Florida’s east and west coasts, said Zandi. He expects housing activity in these areas to bottom out in late 2008 “at best.”
In all, Zandi expects 2008 to be “an extremely difficult year” across the nation’s largest housing markets, with California, Arizona and Florida feeling the the full brunt of the housing downturn with peak-to-trough declines of 15% or more in local house prices. He also forecast that about three quarters of all U.S. home owners will experience declining home prices before the downturn’s end.
On a slightly more positive note, NAHB’s Markstein said that, while year-over-year declines in home prices and production are expected to be substantial as the downturn continues, last year’s housing statistics ― which were clearly unsustainable — are not the ideal comparison for current activity.
Comparing anticipated starts activity to the more normal benchmark of levels in 2002-2003, he said, shows a return to market equilibrium in 2008-2009.
Biggest House-Price Declines Will Be Localized
Markstein agreed that the biggest house-price declines will be relatively localized in markets in California, Florida, Nevada, the upper Northeast and the Midwest, but he also noted that in quite a few housing markets, prices are still rising.
Whether this is good news or bad, Markstein said, it’s a far different story than what has been depicted in the media headlines. In fact, with just a few notable exceptions, most of the country’s metropolitan statistical areas have recorded little or no decline in house prices between their recent peaks and the second quarter of 2007, he said.
The bottom line is that, while rapid price gains are a thing of the past, a lot of home owners are “still in good shape” with regard to their home values, he said.
Photos by Morris Semiatin
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