Feb 20 2007 12:11PM | Permalink | Email this | Comments (1) |
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The near term outlook for housing is still fuzzy because recent market reports are conflicting. And the initial reports are subject to more than usual revision in the neighborhood of a turnabout in the market. While homebuilders themselves report a more optimistic sales outlook in the NAHB February member survey they still expect further decline. The latest (December) reports on starts, home prices and jobsite spending all showed a decline. However, the inventory of homes for sale also decline — which points in the positive direction. Unfortunately, the inventory count is the least reliable statistic.

Reed Construction Data’s housing forecast makes these assumptions about the current state of the housing market: In the single-family market, starts will be stable or rising by March or April, the Census Bureau estimate of construction spending will turn up one or two months later but home prices will continue to slowly weaken until late this year because the inventory overhang is larger than it now appears to be. Many of the record number of empty homes and condos will be listed for sale soon, keeping prices depressed. In the multi-family market, monthly construction spending did not decline until December and may record a few more small gains before a string of very small monthly declines begins. Cyclical turning points are always later in multi-family because starts are in sets not individual and the building cycle is longer. This means that condo prices are likely to decline through yearend and perhaps beyond.

The turnabout date for materials and other suppliers depends on their SF/MF mix and when their products are delivered in the building cycle. Single-family foundation and framing suppliers should expect renewed sales growth in a few months but suppliers of finishing items for condos will have to wait another six months for their sales to begin growing.

This model would seem to suggest that suppliers of pre-construction services are already enjoying rising sales. Obviously, that is not happening. Land acquisition, site development, design and pre-opening marketing and financing services are all very depressed. That is because their sales are not driven by the number of housing units but by the number of housing developments. The surplus of new developments in pre-construction was larger than the surplus of new homes available for sale.