Monday Morning Briefing Letter - 04/30/2007 (Plain Text Version)

By Brian Catalde, NAHB President and
Jerry Howard, NAHB Executive VP and CEO

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The housing market correction isn't over yet,

but things could start making a turn for the better later this year, according to expert economists at NAHB's Spring Construction Forecast Conference in Washington this week.

As NAHB Chief Economist David Seiders pointed out, late last year it was beginning to seem that housing demand had bottomed out and perhaps the worst of the downturn was behind us. But the emergence of problems in the subprime mortgage market, which is leading to tighter lending standards even in the prime mortgage arena, has put the recovery on hold, at least for now, and forced NAHB to lower its forecasts for housing sales and production this year. Following very rapid growth in Residential Fixed Investment (RFI) – which is the housing production piece of GDP that helped propel economic growth in recent years – we're now looking at significant declines since last year that have been enough to significantly trim GDP growth in recent quarters. NAHB's best forecast now shows RFI shrinking substantially again in the first and second quarters, although those declines should not have as much impact on GDP growth as past ones. We're now looking for RFI to stabilize in the third quarter of 2007 before embarking on another growth phase that will be crucial to the overall economy. While neither the Federal Reserve nor NAHB believe that housing will draw the national economy into a recession, the risk factors for the housing forecast remain considerable at this point.

Following are some key elements of NAHB's housing and economic forecast for 2007 and 2008:

                                                 2007                                       2008
Total Housing Starts          -19.9%                                      + 5%
Single-family Starts            -21.3%                                      +5.8%
Multifamily Starts                -14%                                          +2%

New Single-family Sales  -11.1%                                     +13.3%
Existing S.F. Sales              -2.8%                                    +4.1%

Residential Fixed
Investment (RFI)                 -12.2%                                     +4.5%

Read comprehensive coverage of NAHB's Spring Construction Forecast Conference in the next NBN Online, or view the recorded Webcast of the event online. Contact: Steve Melman, x8245.

NAHB Member Benefit: NAHB's twice-a-year Construction Forecast Conference brings the expert analysis of the country's foremost economists within reach of our builder members, the media and financial analysts, who attend the one-day seminar to get the most accurate and up-to-date information on housing and economic trends available. As such, the conference solidifies NAHB's reputation as a primary source of information and aims to help participants make sound business decisions that will positively impact their bottom line.

Testifying in support of FHA revitalization,

NAHB Group Vice President for Advocacy Bill Killmer on April 19 told a subcommittee of the House Financial Services Committee that certain statutory and regulatory constraints have limited the Federal Housing Administration's (FHA's) ability to respond to the needs of borrowers. The result, in some cases, has been home buyers who have ended up with inappropriate mortgages. "Had the FHA been in a better position to respond to changing market forces in the past few years, the subprime situation might not be as severe as it is today," he noted. However, if granted the proper authority by Congress, the FHA's single-family mortgage insurance programs could insure fixed-rate, adjustable-rate and hybrid adjustable-rate mortgage loans to borrowers with limited cash reserves or slightly tarnished credit. This, according to NAHB's testimony, "could be done on far better terms than the subprime loans that are making adverse headlines today."

Killmer noted that, as FHA's share of the market fell from 7% in 1995 to less than 2% in 2005, the subprime loan share simultaneously surged to 20%. He said that all too often, significant differences between FHA requirements and those for conventional mortgages have been viewed by lenders, appraisers and others as a disincentive to use FHA programs. Meanwhile, the FHA's unique and often burdensome requirements have caused many home builders to avoid using its programs to build homes – including condominiums – that otherwise would have been well-suited to borrowers who planned to use FHA-insured mortgage loans. Read more about Bill Killmer's testimony and two FHA revitalization proposals that have been introduced in Congress in NBN Online. Contact: Scott Meyer, x8144.

NAHB Member Benefit: NAHB is urging Congress to pass legislation that would revitalize the FHA in such a way that it would give builders more opportunity to use FHA programs for developing workforce housing and make it easier for first-time buyers to afford a home. [return to top]

Most consumers would refuse to pay for lead clearance tests

designed to identify a safe level of lead dust after remodeling activities, according to a new national survey commissioned by the NAHB Remodelers. The research firm TNS surveyed just over 1,000 residents of owner-occupied homes built before 1978 (the last year that lead paint was used in construction). Overall, 94% of homeowners were aware that lead dust from older homes can cause health problems, but when asked about hiring a third-party company to test for lead dust after a remodeling project, 81% of those planning to hire a professional remodeler within the next two years said they would NOT pay an estimated $200 per room to ensure a safe lead dust level. Meanwhile, a similar percent said they would not pay for the testing when they perform "do-it-yourself" projects on their own. Read more about the survey findings and the EPA's proposed lead paint testing rules online, or contact Jim Lapides, x8451.

NAHB Member Benefit: The survey findings add further credibility to remodelers' concerns that a newly proposed rule by the EPA to regulate renovation activities by contractors in pre-1978 homes would actually have the opposite effect that was intended, because it would add a powerful disincentive to using professional remodelers to do that work. Since do-it-yourselfers would not be regulated by the new rules, the cost incentive is for people to do the work themselves rather than hiring a remodeling pro -- making it much more likely that lead paint removal would be done improperly. [return to top]

Builder confidence took another hit this month

on concerns about the deepening problems in subprime mortgage markets, according to NAHB's latest reading of the NAHB/Wells Fargo Housing Market Index (HMI) on April 16. The overall index fell three points to 33 in April. Apparently the tightening of mortgage lending standards in connection with the subprime crisis has shaken the confidence of both consumers and builders. In fact, the unfolding effects of this crisis have compelled NAHB to trim its forecasts for home sales and housing production for both 2007 and 2008, although we still expect to see some improvements in housing market activity later this year. All three of the HMI's component indexes declined in April, with the index gauging current single-family home sales down three points to 33, the index gauging sales expectations for the next six months down six points to 44 and the index gauging traffic of prospective buyers down a single point, to 27. See our press release and the HMI tables for more information, or contact Gopal Ahluwalia (x8480) or Ashok Chaluvadi (x8482) for more information.

NAHB Member Benefit: NAHB's economic surveys and analysis help our members achieve a better understanding of current market trends and where they are headed, while our media outreach in this regard helps to firmly establish NAHB as the credible source of information on the housing industry nationwide. This credibility with the media ensures that accurate data on the housing market is transmitted to potential home buyers and the public at large, thereby discounting sensationalized accounts of market conditions that may affect your client's decision to purchase a new home.
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Nationwide housing starts ticked up slightly in March

as the Midwest region rebounded from a sharp decline in February and posted an atypical 44.5% increase for the month, the U.S. Commerce Department reported April 17. The pace of housing starts for March was a seasonally adjusted annual rate of 1.52 million units, which was up 0.8% from the month before but still down 23% from the same time last year. On the single-family side, new-home construction rose by 2% as a direct result of a 36% increase in the Midwest. On the multifamily side, housing starts fell 3.8% this time around. According to NAHB Chief Economist David Seiders, "This was the second warmest March on record, and the numbers for starts and permits undoubtedly were supported by this factor. Furthermore, extreme gyrations in the numbers for the Midwest region have obscured underlying trends for several months." Read our press release or the government's official report online. [return to top]

A 2.6% increase in new-home sales

this March only partially offset the sharp declines we experienced during the previous two months and does not indicate a near-term end to the weakness in housing markets, NAHB explained when the numbers were released April 25. Right now, builders are reporting direct impacts on both sales and cancellations as prospective buyers are unable to get mortgage credit or are unable to sell their existing homes because of credit tightening linked to the recent problems in subprime lending markets. Meanwhile, the inventory of new homes for sale edged up in March to 545,000 units, which is equivalent to a 7.8 months' supply at the current sales pace. Completed homes for sale were 33% of the inventory, while units still under construction represented 50% of the inventory and units for sale that were permitted but not yet started represented almost 17% of the inventory level. The median length of time that completed homes were on the market as of March was 5.6 months – up from 5.2 months in February. Said Chief Economist David Seiders, "The sudden tightening of mortgage conditions has had a profound impact on the housing market, and it is hard to know how far the credit pendulum will swing. NAHB's forecast still shows improvements in home sales and housing production by the second half of this year, although these forecasts are subject to an unusually wide range of risk." See our press release or the government's official report for more information. [return to top]

NAHB's Quick Issues Index

documenting the latest advances on our top Advocacy issues has just been updated for the April Executive Board Meeting taking place in Las Vegas this weekend. It's now available to all logged-in NAHB members on our Web site. Readers of this report will recall that this particular report is the brainchild of NAHB President Brian Catalde, who as oversight officer for NAHB Advocacy in 2006 directed its development as an efficient means of updating our leadership and providing contact information and Web addresses telling you where to go for more data on a given subject. The Quick Issues Index can be found at www.nahb.org/issuesindex. Contact: Samantha Ehrhart (x8450) for more info.

NAHB Member Benefit: The Quick Issues Index is a handy member benefit that's aimed at updating you quickly and efficiently about the latest developments on housing-related issues and NAHB actions. It is also meant to facilitate communication of NAHB's actions and accomplishments at the HBA level and across our membership. Most importantly, this document, which is updated prior to every meeting of the NAHB Executive Board, provides you essential links and contacts for more information on any given topic, thereby helping connect our members to NAHB's substantial expert resources. [return to top]