The Seiders' Report: A Housing Overview by the NAHB's Chief Economist

Highlights

• Real GDP growth has been running seriously below trend for several quarters and the labor market has been weakening systematically since late last year. That pattern promises to persist over the balance of the year and into 2009, producing a “growth recession” if not an official economic recession.
  
  
• The major danger zone for the U.S. economy has shifted to the second half of this year, particularly to the fourth quarter, largely reflecting “payback” for the fiscal stimulus that’s supporting consumer spending during the middle two quarters of the year. A dwindling drag from housing, further improvements in our trade balance and a policy-related firming of business capital spending will be needed to keep the economy afloat as consumer spending weakens late this year.
  
  
• Surging prices for energy and food have driven headline inflation numbers into the stratosphere, and inflation expectations in the private sector have risen significantly. Even so, key measures of  “core” consumer price inflation (excluding food and direct energy prices) have been remarkably well contained. Growing slack in labor markets should hold down unit labor costs and put downward pressure on core inflation during the second half of this year and into 2009.
  
  
• Financial market conditions have taken another turn for the worse, following improvements from the abyss reached in March when Bear Stearns essentially went under. Financial institutions are once again announcing sizeable mark-to-market asset write-downs, volume in private securitization markets is spotty at best, credit quality spreads are widening again in bond and mortgage markets, and the stock market has staged a rapid retreat. These unexpected turnarounds have seriously complicated the near-term economic outlook and presented the Fed with yet another set of challenges.
  
  
• The Fed held monetary policy steady at the June 24-25 FOMC meeting while paying more lip service to potential inflation pressures. We expect the Fed to talk tough on inflation but to maintain the current “accommodative” monetary policy stance until the second quarter of next year. Fed funds futures markets are moving toward this view, and long-term Treasury rates have receded in the process.
  
  
• Home sales have been mixed recently, continuing to erode in the new-home market but stabilizing in the existing-home market. Existing-home sales are reflecting rising foreclosures and foreclosure sales, a process that’s actually putting heavier downward pressure on the new-home market. NAHB’s surveys of home builders have yet to show stabilization of either net home sales or sentiment regarding the demand side of the single-family market.
  
  
• Weak demand and heavy oversupply continue to put substantial downward pressure on house prices, at least on a national-average basis. Median prices of new and existing homes sold continue to trail downward while prominent repeat-sales measures are falling sharply. The S&P/Case-Shiller 20-city composite fell at a 19% seasonally adjusted annual rate in April and was down by 17% from its mid-2006 peak.
  
  
• Price-to-income ratios now have fallen back to normal historical ranges and standard measures of housing affordability have picked up a good bit from their mid-2006 lows. However, tight mortgage lending standards and expectations of further house price declines have kept prospective home buyers on the sidelines.
  
  
• Housing production is still on a downward path, and improvements in new-home sales and inventory positions must be achieved before any sustained pickup in housing starts can occur. We expect the recovery in housing starts to begin in the second quarter of next year, although we expect both housing starts and residential fixed investment to be down in 2009 on a year-over-year basis.
  
  
• The tightening of lending standards in the home mortgage market has continued apace, and NAHB surveys show that we’re now facing an evolving credit crunch in the markets for land acquisition, land development and construction (AD&C) loans. The availability of new loans has been cut back dramatically and lenders are tightening terms and conditions on many outstanding loans — prodded by financial regulators based in Washington.
  
  
• The need for federal legislation to spur home buying and hold back the foreclosure wave is increasing day by day. Congress went home for the Independence Day recess without reaching agreement on key aspects of the housing bill, although there’s a good chance that a bill will be sent to the President by the August recess. The centerpiece is a temporary $8,000 tax credit for first-time home buyers, a provision that could jump-start home sales, help to stabilize house prices and mortgage credit quality, and take some pressure off the AD&C loan markets as well.

   

Full Report

Please note: This information is available only to HousingEconomics.com subscribers. Download free Samples.

Instant Online Access Now!

< Previous Article | Next Article >

[ return to top ]