More Mortgage, Housing Market Woes Predicted

With home prices still falling and bad credit home loan foreclosures still rising, U.S. home builders won’t see better days until the end of the year, several noted industry economists said Thursday.

“We’re definitely looking for further price erosion,” David Seiders, chief economist for the National Association of Home Builders, said at the trade group’s Spring Construction Forecast Conference.

The key problem is the glut of unsold homes and rental properties choking the market, both of which are running very high, leaving America heavily oversupplied, experts believe.

Still, with the U.S. population and labor market expanding, the 2-year-old housing market recession will ease in roughly six months, Seiders said.

“We’re fairly near the bottom now,” he said. “Things will stabilize and start to move up in the latter part of this year.”

From the housing cycle’s peak in 2005 to its bottom, which likely will come this summer, home prices of new homes will have declined about 10 percent, said Mark Zandi, chief economist of Moody’s Economy.com.

By next spring, builders should be enjoying a recovery, but for now, “the housing correction is in full swing,” he said.

In 2005, housing starts totaled more than 2.07 million, home builders say. But in 2006, the market declined dramatically, with builders starting only 1.82 million homes, a drop of more than 12 percent.

This year, builders will probably start just 1.45 million homes, a drop of nearly 20 percent from last year - and a 10-year low. Seiders believes expansion will resume in 2008, when 1.53 million homes will be built.

Although the housing recession stretches from coast to coast, conditions can vary greatly depending on location. For example, the new construction plunge is far more severe in South Florida, where soaring inventory and defaults are choking Florida mortgage demand, than in most other areas.

This is because the boom there was greater in 2001-2005.

South Florida home building will recover at some point, but for now “there’s a big overhang, so it’s going to take a while,” stated Patrick Lawler, chief economist for the Office of Federal Housing Enterprise Oversight (OFHEO).

“You start to see prices rising, so you think, ‘I better do this quick,’ but that clearly bred some speculation,” he said. “With the accelerated demand, builders too got carried away and flooded the market.”

In contrast, the population was not booming in the Midwest.

Across the nation, many mortgage broker and lender groups urged homeowners to draw equity out of their homes by refinancing, often by using expensive subprime (bad credit mortgage) lending options.

Now the job market is weakening significant and those mortgages are resetting to higher rates, touching off a wave of foreclosures as mortgage refinancing is hard to come by for many.

Thomas Lawler, an economist with Lawler Economic & Housing Consulting LLC in Vienna, Va., said there is one big difference between Ohio and South Florida today: how far home prices can still fall.

Because of heavy speculation in both homes and condos, South Florida “has a big potential for a material drop in prices,” he said. “There’s still potential for a 15-20 percent drop.”

Patrick Lawler said some markets, especially in the South and Texas, have held fairly steady during the housing downturn.

Compared with, say, California or South Florida, “Atlanta didn’t see the big, booming prices on one hand, and on the other, it did not experience the economic weakness of Ohio and Michigan,” Lawler said.

“So you see much more stability there.”

On the flip side, Texas home loan demand has held up extremely well because of the oil industry boom, and because the housing market has grown modestly throughout the decade.

Housing starts are expected to decline only 14 percent in Austin and 10.5 percent in Dallas this year, powered by extremely affordable mortgage costs, experts say.

SOURCE: Palm Beach Post