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Timing for Residential Housing Recovery Remains Uncertain

Nov 1, 2008 12:00 PM

The steep decline in sales of new single-family homes should be coming to an end in early 2009, said David Seiders, chief economist for the National Association of Home Builders (NAHB), at the associations' fall Construction Forecast Conference in October. However, while remaining reasonably optimistic that a housing recovery is beginning to take shape, the uncertainties are unprecedented, says Seiders. In light of the turmoil that has gripped world financial markets, there is a growing risk that housing contraction could get even worse.

On the brighter side, Seiders says housing in the first half of 2009 should be helped by the $7,500 tax credit available to first-time home buyers, legislative efforts to address foreclosures, the continuation of affordable mortgage rates, and the availability of fixed-rate mortgage financing through Fannie Mae, Freddie Mac, the Federal Housing Administration, and the Department of Veterans Affairs. However, even as the demand for housing begins to grow, production will inevitably be constrained by tighter credit for the loans that developers need to break ground on new residential projects, he says. Putting this prediction into perspective, NAHB is forecasting 936,000 total housing starts for 2008, a 30.2% decline from the 1.34 million homes produced last year. Starts in 2009 are projected to slide 16.2% further, to 784,000 units, and 2010 would bring production up to the 1.0 million level.

On the sales side, purchases of newly built single-family homes turned upward in September, posting a 2.7% gain to a seasonally adjusted annual rate of 464,000 units, according to U.S. Commerce Department numbers.

“It's great to see some upward movement in new-home sales, particularly in light of the strong efforts that home builders have been making to bring supply and demand back into balance by limiting new construction and offering substantial price- and non-price incentives on already-built units,” says NAHB Chairman Sandy Dunn, a home builder from Point Pleasant, W.Va.

Despite this progress, the number of new homes for sale shrank to 394,000 units in September, down from 425,000 units in August. At the current sales pace, a 10.4-month supply of unsold new units existed in September versus an 11.4-month supply in August.

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