Why Forecasts of Housing Starts for End of 2010 Vary 30%

Freddie Mac, the federal mortgage agency, expects housing starts to expand to an annual rate of 950,000 in the last quarter of 2010 while National Association of Realtors expects a rise only to 680,000. Starts totaled 460,000-500,000 in spring 2009. The average of seven forecasts puts Q4 2010 starts at 841,000. The Reed Construction Data forecast is 759,000. This is above the grim forecasts from the Realtors and home builders’ trade associations but below the optimistic forecasts from financial market sources. This unusually large gap will substantially close as soon as it is clear when and how vigorously the overall economy resumes growing in the next few months.
The housing associations may be guilty of trimming their forecasts to make a better case that more government aid to the housing market is needed. Their forecasts are typically on the low end whenever the housing market is troubled. But they know this market better than other forecasters. The low forecast from the National Association of Home Builders may reflect its concern that their members may not have the financial resources to expand building ahead of an anticipated rise in new home sales. Note that all of the forecasts, except the National Association of Realtors, expect a small rise in housing starts in the current quarter and then progressively larger gains through 2010.
The very low forecast from the Realtors may come from their unique insight on trends in home available for sale, home prices and the confidence of prospective buyers.
By contrast, the optimistic housing start forecasts from the financial market and economic consultants may depend on their assumptions of some legislative changes that the housing associations are still trying to get from Congress. This includes more credit available from borrowing and more efforts to stop foreclosures. Also, these forecasts have a relatively optimistic view of income and confidence improvements in the overall economy. This comes from recent trends in inventory reduction and export orders. The forecasts in this set include dismal.com; Wells Fargo and BMO Capital Markets; Freddie Mac; Fannie Mae; and the Research Seminar in Quantitative Economics.
The Reed Construction forecast in the middle of the pack incorporates the concerns of the two housing industry association but also expects them to get some of their wishes granted by Congress.
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