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 March 08 Beacon Builders Association Says It’s Going to Get Worse Before it Gets BetterUpdated Forecast from NAHB’s Chief Economist Sees More Downside; Still Projects Market to Bottom Out This Year<MARCH 4, 2008>In a conference call today, the National Association of Home Builders chief economist David Seiders and CEO Jerry Howard presented a grim but hopeful view of the housing market for the near future. They called for vigorous action on the part of Congress to pass needed reforms and implement a strong economic stimulus package to avoid a recession.
Calling the current situation the most rapid downswing in the housing market since the Great Depression, Seiders warned that all housing indicators continue to point downward. He went on to warn that the forecast he was presenting was the highest probability forecast but qualified his comments by  saying that, “Downside risks are accumulating every day.”
While in past conference calls, Seiders took pains to note that the housing downturn was regional, he now says that more of the country is now in contraction with most markets either flat or declining. Housing, Seiders said, is the “weakest component of the overall economy…” and is pushing the economy to the brink of recession, “if we’re not already there.”
Seiders showed several updated market data and highlighted those that were most important. Construction employment (see Payroll Employment in Home Building at right), he noted, lost 28,000 jobs in January…375,000 from peak employment back in 2006. Job declines are mounting and will continue to do so in the months ahead, he said.
Data on net home sales at large builders (see "Net Home Sales at Large Builders" at right), which is defined as gross orders less cancellations, continued to show downward momentum through January…down 65% from the peak rate in 2005.
Vacant year-round housing units for sale (See chart on left), a key indicator of unsold housing inventory rose 800,000 units. This is a lot of units weighing down the market, with Seiders noting that this is the equivalent of approximately ten months inventory, “which is quite heavy,” Seiders said.
With weak demand for housing and an oversupply of available inventory, you get rapid price drops in home values, commented Seiders. In the fourth quarter of 2007, house prices dropped 19% according to new data from S&P/Case-Shiller.(Please refer to chart at left.)
The associations economist forecast that the Fed will cut interest rates one-half percent at its  March 18th meeting and another one-quarter point at their April meeting. If the situation continues to deteriorate, he felt there was the possibility of another rate cut between the two meetings.
Seiders is forecasting a turnaround in new home sales mid-way through this year with a peak-to-trough decline of -55% (with the peak in 2005). This is the equivalent of the sales level in 1990. (See "New Home Sales" at right.)
Seiders went on to say that single family housing starts will bottom out in the third quarter this year and begin a recovery in 2009 after huge year-over-year losses with a total peak-to-trough of - 60%. (See "Single-Family Housing Starts" at right.)
The press questioned Seiders closely on his level of confidence in this new forecast. He noted that there were several risks to a downward revision, and many elements such  as employment progress, interest rate consistency, and necessary Congressional intervention had to stay in line with expectations for the forecast to remain valid.
NAHB CEO Jerry Howard closed out the call noting that the NAHB is “quite concerned about the short and intermediate terms of the housing market.” Housing, Howard noted, has led us into and out of virtually every major recession in our history. Howard called upon Congress to take all necessary steps to avert this. |
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