'08 ahead: good news and bad in housing
In our January issue, HCN takes a look at the housing recovery predictions from some of the country's top trade groups, financial institutions and lenders.
This time last year, forecasts for the building industry were using words like “full recovery” and “positive growth.” But that was before the subprime lending debacle, which has thrown a wrench into everyone’s bar chart. Economists and financial analysts are a lot more conservative in their predictions this time around, although some differ on the timing, size and pace of the recovery. Here is a roundup of forecasts:
National Association of Home Builders
The trade association of home builders has lowered its outlook considerably over the past year. The NAHB now predicts that housing starts will turn around in the second quarter of 2008.
Housing starts in 2007: 1.35 million (est)
Housing starts for 2008: 1.08 million (est)
Housing starts for 2009: 1.19 million (est)
Bad news: “We’ve hit a rough patch where the probability of a recession has increased significantly in a short period of time,” said NAHB chief economist David Seiders, who put the probability at 40 percent.
Good news: The NAHB’s most recent survey of big builders showed a flattening of new home sales and a decline in cancellations.
National Association of Realtors
The trade association representing real estate professionals believes that the cutbacks in residential construction are continuing, but most of the major declines have already occurred.
Housing starts in 2007: 1.2 million (est)
Housing starts in 2008: 1.15 million (est)
Bad news: “Foreclosure rates will continue to rise in 2008,” said NAR chief economist Lawrence Yun.
Good news: “We will easily escape recession.”
Fitch Ratings, a credit ratings agency, paints two scenarios: the more likely one has new home sales bottoming out in late 2008 and housing starts turning around three to six months later, in early to mid-2009.
Housing starts in 2007: 1.37 million (est)
Housing starts in 2008: 1.18 million (est)
Bad news: “There is a high probability that public builders’ revenues and profits will fall further in 2008 and drop rather sharply from already depressed levels,” notes Fitch analyst Bob Curran.
Good news: Most of the public builders that Fitch tracks have negotiated new revolving credit agreements or amendments to existing agreements that should prevent the companies from violating interest coverage covenants in the fourth quarter of 2007 and into 2008.
The market intelligence and research firm believes that the U.S. housing market is close to a bottom, with a turnaround anticipated in mid-2008. A growing shortfall of housing will create a rebound effect in 2009.
Housing starts in 2009: 1.6 to 1.7 million (est)
The news, bad and good: Lumber prices will move higher in early 2008, but increased production and conservative buying by dealers will lower prices in the second quarter. Overall, lumber prices for major species and products will decline about two percent for the year.
The nation’s largest holder of secondary mortgages forecasts that the housing market will begin stabilizing in the second half of 2008 with “sustained gains” beginning in 2009. Home prices to remain weak into 2009 with modest gains in 2010.
Housing starts in 2008: 1.30 million (est)
Bad news: Plenty of foreclosures ahead. “Some places will be worse than others: Nevada, California, Florida, Michigan, Indiana and Ohio. In these places, foreclosures will rise,” said Daniel Mudd, Fannie Mae’s president and CEO.
Good news: Rental markets remain strong. Credit is holding up extremely well in the multi-family market. Serious delinquencies and credit losses remain low.