Friday, February 15, 2008

Housing market will hit bottom soon, economists hope

ORLANDO, Fla. – Economists hope the sinking U.S. housing market will begin to find bottom this year.
If not, they worry it could turn into an even more devastating downturn.
"It's absolutely essential to get this thing moving in the other direction and get home sales going," David Seiders, the National Association of Home Builders' chief economist, said Wednesday.
He said the housing market must improve "so this doesn't degenerate into an absolute debacle."
Housing economists who gave forecasts Wednesday in Florida found a rapt audience at the National Association of Home Builders' annual convention.
The meeting of close to 100,000 housing industry members comes as the business faces its biggest challenges in decades
Home construction plunged in 2007 and is likely to fall further this year in the face of a national economic slowdown and problems in the mortgage market.
Even Texas – which has so far dodged the worst of the housing slump – won't be immune, analysts said.
But prices in Texas markets may hold up, said David Berson, economist with mortgage insurance giant PMI Group.
"Home prices have fallen significantly in some parts of the country, and they are going to fall some more," he said.
"We suspect that from peak to trough, prices will have fallen on a national average basis by 15 percent or maybe a little bit more," Mr. Berson said. "But there are some parts of the country – Texas, the Carolinas and the Pacific Northwest – where prices won't have fallen at all."
But even in Texas, homebuilding has dramatically slowed and is likely to fall further this year, analysts say.
Nationwide, single-family home starts declined 30 percent this year and will slide another 27 percent in 2008, according to the National Association of Home Builders' new forecast.
This year's expected drop in building could take single-family home production around the country below 1 million units for the first time since 1991.
And because of the huge overhang of unsold new homes, any rebound will be delayed and "muted compared to some rebounds we've seen in the past," Mr. Seiders said.
Still, he's hoping that the "vast bulk of the housing downturn is behind us."
The builders association expects a modest increase in nationwide starts in 2009.
But other analysts aren't so sure. Some recent studies have warned that the housing slump could drag on for several years.
And educational programs offered to builders at their convention mirror the dour mood of the market. Seminar topics include "Unique Opportunities in Bankruptcy," "Selling in a Slower Market" and "How to Compete With Resales and Foreclosures."
Attendance at the annual confab is expected to be down by as much as 15 percent this year.
Despite well-intentioned government programs and promises of forbearance by lenders, don't look for any relief on the foreclosure front, economists said.
"Sadly, I think the news is going to get worse before it gets better," said Frank Nothaft, top economist at Freddie Mac, the big mortgage company.
Mr. Nothaft estimates that 1.25 million U.S. homes wound up in foreclosure in 2007.
"And we are going to see a higher number in 2008," he said. "It's going to be a tough year to get through with further declines.
"We expect house values to continue to weaken nationwide over the year and into 2009."
That's in spite of forecasts for mortgage rates to fall to the lowest level in almost three years.
Recent sharp declines in interest rates aren't having their usual stimulative effect on the housing market because lenders have ramped up the requirements for getting a mortgage.
Mr. Nothaft said that if borrowers have good credit and employment and can make a down payment, it's a great time to finance a house.
"But certainly there are a lot of people who can't do that," he said.
Congress just passed legislation that will make it easier for buyers to finance more expensive homes by raising loan limits.
The builders are pressuring politicians to do even more.
One thing the builders would like to see Washington approve are tax credits for some homebuyers.
Mr. Seiders said such an incentive was used temporarily in the 1970s to move builders' vacant unsold inventory.
"It worked like a charm, and the housing sector stabilized very quickly," he said. "They had better look really hard at the housing sector because that's the problem" with the U.S. economy.