While home builders are in for some scary times over the next 18 months to 24 months, the horror show in the residential market should end in 2010, according to several economists at the 2008 Fall Construction Forecast held by the National Association of Home Builders (NAHB) on Oct. 22 in Washington, D.C.
With housing inventory at near-record levels, a dearth of customer demand for new homes, the impact the credit crunch is having on residential mortgages, and the current economic climate in the United States, electrical manufacturers that produce products for the residential market have had to weather one of the worse climates in the residential market in years. The electrical companies that were in attendance at the NAHB Construction Forecast must have been happy to hear that business will eventually improve, and that when it does the demographic realities of a new generation of homebuyers, pent-up demand and changes that will have to be made to the U.S. and global financial systems to help prevent another meltdown will fuel another growth cycle.
Until then, however, it’s going to be ugly, said several of the speakers. David Seiders, NAHB’s chief economist, said the situation in the housing market is worse than any economist anticipated six months ago. “The economy is weakening more than we expected,” he said. “It’s a new world. Forecasting in this environment is extremely difficult. Uncertainties are unprecedented and risks have never been higher.”
He expects single-family housing and total housing starts to drop 17.7 and 21 percent, respectively, in the first quarter of 2009 before starting to increase from a very low level. By the end of 2009, bearing any further unforeseen economic surprises, he expects to see 835,000 total housing starts. This is up from the 785,000 total housing starts he is forecasting for 2007, but well under the level of housing starts the homebuilding industry enjoyed in the boom years of 2005-2006.
At several of the NAHB forecast meetings during the go-go years of the housing market, Mark Zandi, the chief economist for Moody’s Economy.com, was often the lone economist with a bearish outlook for the fortunes of home builders. While other economists at those meetings often talked about sustainable demand for the record levels of residential construction, Zandi warned attendees about housing bubbles and the dangers of no money-down mortgages and other financing schemes. As things turned out, his forecasts came closer to today’s reality than those of other economists at those NAHB gatherings.
While his assessment of the current situation in the housing market was grim, he said that after this shakeout, several market drivers will kick into gear that will support a comeback in 2010. By that time, Zandi expects builders to work off the current housing inventory. Other drivers will include more affordable homes as measured by the price-income ratio and low interest rates for mortgage loans.
But builders must first deal with a housing bust that Zandi called “unprecedented” and the government and banks must work through the 3 million mortgages now in default and what he called 15 million other “very sketchy” loans. “The job market is a mess and will get worse,” he said. “The next six months will be extraordinarily painful.”