Although the national housing outlook has continued to deteriorate this spring, which is normally the peak home buying season, housing is expected to start climbing into positive territory before the end of the year in some parts of the country, according to the National Association of Home Builder's state and top 100 metro housing starts forecast for 2008-2009.
Continuing turmoil in the credit markets and a weakening economy guarantee that “housing markets will face another challenging year in 2008 before any meaningful recovery takes hold in 2009,” the NAHB forecast says.
The credit market crisis alone, which started with last summer’s subprime mortgage meltdown and has since resulted in a broad-based mortgage credit crunch for prospective home buyers, has depressed housing sector activity by an additional 30 percent, NAHB economists calculate. As a result, housing permits nationwide have plunged to only 37 percent of their levels at the height of the boom in 2005.
“Anticipation of further declines in house prices in many markets will keep demand soft and additions to supply minimal in the near term,” the forecast says. “Foreclosures threaten to dump additional houses back into markets with already bloated inventories of unsold homes.
“But the level of distress in local and regional housing markets is far from uniform. While the annual figures will be negative for most markets, our forecast is for recovery in a number of areas by the fourth quarter of 2008.”
The Northeast will be the first to emerge from the current housing correction, with several states turning the corner in the third quarter and most by the fourth, according to the forecast.
“While some of these markets experienced rapid price appreciation over the decade, the largest markets — New York, Boston and Philadelphia — avoided the extent of over-building that accompanied the price run-ups in other markets,” the study says. “The absence of large unsold inventories will help to mitigate the downward pressure on prices that will drag out the recovery process in markets that have similarly elevated housing prices but also have large inventories.”
A growth patch for single-family housing starts in the Northeast during this year’s fourth quarter encompasses all of the New England states and extends into New York, New Jersey and Maryland in the Mid-Atlantic region. “Moving away from the eastern seaboard, markets in the western and northern parts of these states experienced more moderate house price appreciation and so are less vulnerable to price corrections and inventory problems,” the report says.
Next in line for a regional housing recovery is the South, with the notable exception of Florida.
“Housing markets in Texas, Atlanta and parts of the Carolinas performed well during the housing boom,” the forecast says, “resisting the excesses that have come back to haunt other markets.” These markets weathered the onset of the cyclical correction in the industry in 2006 better than most, but they did feel the negative repercussions of 2007 and will experience a mild 2% decline in single-family construction in this year’s final quarter before returning to robust growth in the first quarter of 2009.
Most housing markets in Florida will continue to struggle through the middle of next year, NAHB predicts. “These markets have been the most volatile through the boom and bust of this housing cycle and will be the slowest to recover from the heights of speculative excess,” and they have also been hard hit by escalating foreclosure rates.
Pensacola, where prices and production stayed closer to historical norms during the boom years, and Jacksonville, where production surged but price appreciation was more restrained, will experience weakness this year but are expected to display more strength in 2009 compared to other Florida markets.
Although the Midwest on the whole is expected to move into a recovery mode next year, prospects are a bit divided between the region’s eastern industrial states, which are projected to experience further declines in the second half of 2008 as the result of ongoing economic weakness, and the western farm states, which will show signs of improvement earlier stemming from flourishing agricultural commodities.
The West will be the slowest to recover, according to the NAHB forecast.
“This should not be surprising since this region is dominated by Las Vegas, Phoenix and markets in California,” the forecast says. “These markets join the Florida markets as among the most troubled in the nation. Over-production, double-digit house price appreciation, heavy reliance on subprime mortgages and rapidly rising foreclosure rates were staples of these markets through this housing cycle and most of these markets are expected to decline through the end of 2009.”
Levels of excess in western markets where prices have been on the decline are an almost certain indicator of further price erosion, the study says.
Notable exceptions to the relatively gloomy outlook for the region include:
- New Mexico, where production and price growth have been moderate and subprime mortgages and foreclosures have remained below the national average
- Colorado, where production and prices remained restrained, subprime borrowing has been high but foreclosures have so far been low
- Idaho, where production spiked during the boom put price appreciation remained modest, and subprime mortgages and foreclosures have remained low