2009 Housing Outlook Weak, Needs Stimulus

October 22, 2008

The National Association of Home Builders is forecasting 936,000 total housing starts for 2008, a 30.2 percent decline from the 1.34 million homes produced last year. Starts in 2009 are projected to slide 16.2 percent further, to 784,000 units, before picking up again in 2010 to the 1.0 million level.

Those projections were offered at NAHB's Fall Construction Forecast Conference today, where David Seiders, NAHB chief economist also urged Congress to consider providing further “sorely needed” economic stimulus to encourage homeownership and limit foreclosures in order to pull the U.S. economy out of recession.

The steep decline in sales of new single-family homes should be coming to an end in early 2009, Seiders noted, setting the stage for “tepid” improvement in new residential construction later in the year. However, he warned, that outcome has grown increasingly uncertain in light of the turmoil that has gripped world financial markets.

“Things are a lot worse than any of us had anticipated six months ago,” Seiders said, and the nation’s housing market–which is the root cause of the collapse in confidence among lenders–has continued to spiral downward. “Risks are piling up on the down side. These are tough times, no question,” he added.

While remaining reasonably optimistic that a housing recovery is beginning to take shape, “the uncertainties out there are unprecedented,” Seiders said, and there is a growing risk that today’s major housing contraction could get even worse.

The level of confidence among builders surveyed in October for the monthly NAHB/Wells Fargo Housing Market Index fell to the lowest point since the series was started in 1985, he noted.

“The bottom line is that the financial crisis can’t get much better until the thing that started this thing off, housing starts, gets better,” said Maury Harris, U.S. chief economist for UBS, who also spoke at the conference.

On the brighter side, Seiders said that housing in the first half of 2009 should be helped by the $7,500 tax credit available to first-time home buyers; legislative efforts to address foreclosures; the continuation of affordable mortgage rates; and the availability of fixed-rate mortgage financing through Fannie Mae, Freddie Mac, the Federal Housing Administration and the Department of Veterans Affairs.

Citing an increase in pent-up demand for housing, he added that declines in home prices and increases in personal income have helped to restore housing affordability to the more normal levels that existed prior to the peak of the housing boom.

However, even as the demand for housing begins to grow, housing production will be constrained by tighter credit for the loans builders and developers need to break ground on new residential projects, according to Seiders.

NAHB has also announced that David Crowe, who has been the senior staff vice president for regulatory and housing policy since 2002, has been named the association's new chief economist, effective November 17. Seiders recently announced his retirement after serving as NAHB's chief economist for more than 20 years.