The housing market continues to deteriorate, and subprime-related tightening in the mortgage market is among the contributors, the National Association of Home Builders announced in a forecast report Tuesday.
“Most housing indicators show ongoing deterioration of market conditions through all or most of the second quarter, and it’s clear that the subprime-related tightening of mortgage market conditions has provoked an extra down leg to the housing downswing that began in the second half of 2005,” stated David Seiders, the association’s chief economist.
“Most indicators point toward further deterioration.”
Seiders’ latest forecast called for a 23 percent decline in single-family housing starts this year compared to 2006, followed by a 2 percent growth in housing starts in 2008. Seiders expects a 16 percent drop in multifamily starts this year and a 2 percent decline in 2008.
Single-family starts are expected to drop 4 percent in the second half of this year compared to the first half, and to hit bottom with an annual rate of 1.1 million units in the fourth quarter.
Also, manufactured-home shipments are expected to drop 19 percent this year, followed by a 10 percent rise in 2008. A 2 percent drop in the real value of residential remodeling is expected this year and in 2008, and the forecast calls for a 14 percent drop this year in residential fixed investment, followed by a 1 percent gain in 2008.
According to the association’s June survey of about 400 single-family home builders, 43 percent of respondents said housing market conditions were still declining while 39 percent said conditions were stabilizing, 9 percent said conditions were improving and the remainder were not sure.
Also, about 45 percent of builders the June survey said tighter lending standards were taking a toll on home sales, and 28 percent said tighter standards were raising sales cancellations, according to the report.
About 40 percent of builders in the survey said they plan to start about the same number of housing units in the second half of the year as in the first half, while about 36 percent said they plan to start fewer units.
“The assessment of market momentum in our June survey actually was less optimistic than an assessment … from a similar survey conducted earlier in the year,” Seiders’ report states. “It’s clear that the tightening of mortgage market conditions in the wake of the subprime debacle contributed heavily to the deterioration of builder views of housing market momentum at mid-year.”
The report also states that the survey “highlighted the adverse impacts of the subprime mortgage crisis on sales and cancellations and reinforced our judgment that housing starts will decline moderately in the second half of the year.”
Two major imbalances remain in the single-family housing market, Seiders stated. “Affordability remains historically low, a problem that’s been aggravated by tighter lending standards in connection with the subprime mortgage debacle,” he said, and “inventories of vacant homes for sale (new and existing) have climbed to record highs, boosted by homes put back on the markets by investors-speculators who had gobbled them up during the 2003-05 boom.”
Growth of real gross domestic product slowed to an annual rate of 0.7 percent in the first quarter, which was the slowest pace in about four years “and prompted a lot of speculation about near-term recession in the U.S. economy,” Seiders noted in his report. But this rate is expected to rise to about 3 percent for the second quarter.
While the report calls for “near-term growth performance” through 2008, it also estimates a 20-25 percent chance of a recession.
The NAHB forecast calls for average monthly job growth of about 125,000 through 2008, which compares to an average pace of 189,000 in 2006.
Seiders expects the Federal Reserve to hold the federal funds rate steady through 2008, “allowing the real funds rate to gravitate upward as core inflation recedes further.” The Federal Reserve, at its June 28 meeting, held the federal funds rate for the 12th consecutive month.
Several large home-building companies reported substantial quarterly losses this year. KB Home reported a $148.7 million loss in the second quarter ended May 31, 2007, builder Lennar Corp. reported a second-quarter net loss of $244.2 million and MDC Holdings Inc. reported a net loss of $94.4 million in the first quarter.
