By Paul Jannke, Senior Vice President, Wood & Timber Information, RISI
BEDFORD, MA, May 9, 2008 - It seems that hardly a day passes when we don’t hear more troubling news about the state of the US housing market. New home sales and prices plunged again in March; the month’s supply of new homes surged; vacancies and foreclosures were up; mortgage applications were down; starts, permits, completions, and homes under construction all continued to decline. The question is, how bad will the housing market get and when will it start to recover.
We believe new home construction markets will continue to edge lower in 2008, bottoming in the second half of the year. We expect the markets will begin to recover in early 2009. While we do expect these markets will turn around next year, the rebound will be muted. What is the basis for this forecast?
Near-term, housing starts will weaken further. Foreclosures, which had been on the decline late in the third quarter and through much of the fourth quarter of 2007, are again rising. Further difficulties in mortgage markets will deepen and prolong the current credit rationing. In addition, instead of reversing with the decline in housing starts, inventories, as measured by the months supply of homes for sale, shot up to 11 in March, a level not seen since the early 1980s. The increased supply of homes on the market (relative to sales) will prolong the downturn. With banks continuing to keep a tight rein on credit and 11 months supply of new homes for sale, we could see housing starts dip below 900,000 units (SAAR) over the next several months.
We do expect housing markets will stabilize towards the end of the year and begin to edge higher next year.
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