Metrostudy: Housing Starts To Increase in 2010

Houston, TX – Nov. 16, 2009 — In advance of the national housing starts figures about to be released by the U.S. Department of Commerce, national housing market research firm Metrostudy has updated its forecast of starts for 2009 and 2010.
 
“Housing starts rose through most of 2009, and most of the gains were driven by improved demand,” said Brad Hunter, Metrostudy’s chief economist and national director of consulting. “Some of the improvement was a pulling forward of demand from 2010 resulting from the tax credits, but the forecast for 2010 is for additional increases in construction activity.” 

Starts increased sharply during the summer and early fall, partly because of the $8,000 tax credit for first-time home buyers, but also because speculative inventories are down sharply for many builders and there has been a sharp increase in demand resulting from now-affordable prices, Hunter said. “Many homebuilders recently reduced their inventory enough that they now need to start a house every time they sell one, just to keep specs at a normal level. But starts are likely to rebound only moderately from this point, first, because there are still some builders in the bubble markets who are working off inventory, and second, because some builders’ banks are cutting off their credit even if they are current on their loans. Finally, some builders are finding prices too low to be able to sell homes profitably.” 

Metrostudy has concluded that the recently enacted extension and expansion of the tax credits for home buyers will continue to buoy sales somewhat, but that the credits will not have as much effect on overall starts next year as they did during 2009. 

Metrostudy predicts a total of 558,000 housing starts for 2009, and single-family starts are forecast at 440,000. In 2010, the total number of starts is forecast at 719,000. Conducting its own count of builder starts in subdivisions, Metrostudy collects data on a much more detailed basis than the Commerce Department, starting with a 100 percent count of activity in individual projects within 256 counties comprising all or part of 84 Metropolitan Statistical Areas. The firm’s latest numbers, for the first quarter of 2009, show significant variation among markets. 

“Many markets will experience increased homebuilding activity in 2010,” Hunter said. 

Metrostudy’s newly completed national study shows that certain bubble markets have seen significant increases in starts already. The badly beaten-down Naples-Fort Myers market in Florida rebounded from an all-time low of 145 single-family detached-home starts during the second quarter 2009, to 283 in the third quarter. This number outpaces the third-quarter 2008 level (248 starts). These numbers are Metrostudy’s actual counts, and have not been adjusted for seasonal patterns. 

Las Vegas, which was one of the first markets to suffer the negative effects after the peak, started 1,173 detached single-family homes during the third quarter of 2009, an increase of 36 percent from the second-quarter pace of 861, which was, in turn, up 66 percent from the all-time low of 518 starts reported in the first quarter of 2009. 

Phoenix is managing to start more homes than either Naples-Fort Myers or Las Vegas, with 3,618 detached homes started in the third quarter, up from 2,151 in the second quarter, and a low of 1,386 in the first quarter. 

In non-bubble markets such as Texas or North Carolina, starts are also improving. In the Houston market, for example, 5,648 detached homes were started during the third quarter, up from 4,779 in the second quarter, and 3,025 in the first.
 
Metrostudy collects data on attached homes and condos as well, but those are not included in today’s announcement. 

“Homebuilders are still challenged by economic conditions, and also by the lack of credit from banks, but there are some positive trends,” Hunter said. 

• Homebuilders’ sales and traffic are up, and traffic quality is improving greatly. Traffic quality refers to the likelihood that a person visiting a builder’s model will buy a home. This trend is especially evident in California. Even downtrodden Las Vegas, Phoenix, Florida and Southern California have shown significant improvement in sales per subdivision during the last several months. Some builders are experiencing the strongest sales paces in more than two years. Some of this improvement stems from the tax credits, but much of it relates to affordability as well as investor-driven demand. 
• New-home inventory in the hands of builders is now under control in most markets, although there is still a large shadow inventory. 
• Foreclosures are being purchased enthusiastically, but the flow of additional REO is still daunting.

In the release from the government due later this week, October starts are likely to be lackluster, reflecting the end of the rush to take advantage of the tax credits originally slated to expire on November 30. This will be a brief pause before a resumption of increased construction activity (on a seasonally adjusted basis) in the months ahead, Hunter said.

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About Metrostudy
Metrostudy is the leading provider of primary and secondary market information to the housing industry and related industries nationwide. In addition to providing its own primary housing data collected by a staff of 650, the company is recognized for its consulting expertise on development, marketing and economic issues, and is a key source of research studies evaluating the marketability of residential and commercial real estate projects. Services are offered through an extensive network of offices located in major metropolitan areas throughout the U.S. For more information, visit www.metrostudy.com.

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