Already grim residential building market prospects are expected to worsen in 2008 as high home inventories will cause housing starts to decline 25 percent from already depressed 2007 levels
Source: Portland Cement Association, Skokie, Ill.
Already grim residential building market prospects are expected to worsen in 2008 as high home inventories will cause housing starts to decline 25 percent from already depressed 2007 levels. A new PCA Economic Research report finds that by year’s end, a 9.5- to 10-month supply of homes will be in “inventory,” including a large number of foreclosure properties tied to the sub-prime mortgage crisis. “Typically builders accelerate start activity when the inventory supply reaches five months,” notes PCA Chief Economist Ed Sullivan. “A significant improvement in sales and inventory conditions is not expected until the second half of 2009.”
Because existing homes comprise 85 percent of total inventory, increasing sales is key to residential sector recovery. Although home prices will decline by eight percent in 2008, Sullivan notes, tight lending standards, weak economic conditions, and slower household formation will doom 2008 home sales. “Even though buyers can get better priced homes, they must now have good credit scores and as much as a 20 percent down payment to qualify for loans,” he affirms. “With job and income gains expected to slow during the next four quarters, most potential home buyers will back away from such a major purchase until the economy is more stable.”
The federal government’s recent strong monetary and fiscal stimulus actions will start to have a positive impact in the second half of 2008 and first half of 2009, with job creation accelerating in mid- to late 2009, Sullivan adds. Such conditions could spur what he says is a significant acceleration of sales activity, allowing housing market recovery to truly begin.