But...Are You Really Ready for the Coming BOOM in the Housing Market?!?!

National Association of Home Builders releases growth forecast for 2008…

On a conference call held at the end of December, Jerry Howard CEO of the National Association of Home Builders (NAHB), and David Seiders, Chief Economist of the NAHB discussed the current state of the housing market and forecast a housing rebound in 2008.

After acknowledging missing his forecast for housing starts in 2007 by about 15%, and indicating his assessment of a rising possibility of a recession this year, Seiders forecast a turnaround for the housing industry to begin in early to mid-2008. According the Seiders, there are underlying forces that indicate the recent dramatic housing industry declines are finally bottoming out.

In discussing a chart showing net home sales for large home builders (see chart at right), for example, Seiders suggested that recent data indicates a flattening out of the decline in sales. The underlying force here, according to Seiders, is that builders report a significant decline in the rate of sales cancellations, a negative factor that has impacted builders’ recent results.

The recovery of the housing industry is complicated by the continuing turmoil in credit markets. In addition to this, the overall economy is slowing in what Seiders termed an economic “rough patch” with the economy moving forward but only at “stall speed.” Seiders went on to say that the economy is in a “danger zone” in terms of overall economic activity with Seiders raising his probability of a recession to 40% from a recent rating of 30%.

Still, as difficult as the economic situation appears to be, Seiders expects the country to avoid a recession and to return to growth in the housing market. “I think that the best bet is that 2008 is the year we will be looking at the bottom for various components of the housing market” he said.

Seiders expects new home sales to bottom out and begin to turn around in the first quarter of 2008. The impact of the sales turnaround, partly driven by increased affordability thanks to housing price declines, will help impact the bulging inventory of unsold homes.

Housing starts, according to Seiders, are forecast to rebound in the second quarter of 2008. The rate of starts at the turning point, however, is a rate that is a full 55% below the peak in 2006…and a level not seen since 1991.

The remodeling market, which many in the custom integration market address through retrofit installations, will echo the housing industry…with forecasts showing a modest decline in 2007. In 2008, the segment should show a continued 5% decline…primarily falling off in improvements in owner-occupied housing. Recovery in this market is anticipated for 2009. It is important to note that remodeling suffered far less than new construction throughout the last two year period.

Part of the cause for the slightly more optimistic position of the NAHB is the result of recent government activity to address housing and credit related issues by the Fed, the administration, and the Congress. Jerry Howard, CEO of the NAHB, in commenting on recent developments in Washington said, “…policy makers have been doing the right thing.” Howard went on to compliment the Fed for its economic stimulus efforts, changes proposed by the administration relative to the FHA, and Congress’ effort at FHA reform.

Howard and Seiders suggested that the NAHB expects this recovery will be more gradual than those in previous years. In a final note of caution, Seiders took steps to make clear that his optimism was based on several assumptions including the economy avoiding a recession, job growth continuing, growth in personal income, the Fed restoring stability to credit markets, and that recent regulatory changes and other administration proposals actually take place.

He also suggested that this recovery will be very fragmented with some markets already recovering, and others, such as Florida which got overheated with overbuilding in the condo market, may not see improved results until 2009.

So are you ready??? After two really difficult years with a struggling housing and credit market, it is clear that an upturn is in the works. Some economists suggest that the upturn will not take place until 2009...but either way, there is a lot of data that suggests that the worst of the declines are behind us.