US housing prices will have declined by an average of 13% before the current “housing bust” ends, according to a new study from Moody’s Economy.com. And housing will subtract an estimated over one percentage point from econmic growth this year and a percentage point and a half in 2008, the report predicts.
Despite more than two years of sliding home sales, construction, and house prices, the market’s difficulties continue to intensify, according to the report Aftershock: Housing in the Wake of the Mortgage Meltdown.
The current housing recession is expected to run through early 2009 and will ultimately be severe enough to be characterized as a housing crash.
The already record number of vacant homes for sale is sure to increase further in coming quarters, the report says. “The housing market will only find a bottom when significant progress is made in working off this inventory.”
Assuming that the economy is able to avoid a recession, interest rates remain low, and mortgage loan modification efforts quickly increase, home sales are expected to hit bottom in early 2008, housing starts by the fall of 2008, and house prices in early 2009.
From peak to trough, sales are expected to fall by over 40%, starts by 55%, and house prices by 13%.
The decline in activity and prices will be substantially more severe in Arizona, California, Florida, Nevada, around Washington, D.C., and throughout parts of the industrial Midwest.
Alternative, much darker, scenarios are of course not difficult to construct, the report says. “The housing recession and erosion in mortgage quality threatens the already very fragile global financial system and the broader economy. Odds of further financial turmoil and recession are high, and the implications for the housing market are of course very serious.”
Policymakers are not standing still, however, and are acting increasingly decisively to head off a more severe downturn, Moody’s says. “Even more action will be necessary to ensure that the housing downturn, the worst in the post-World War II period, does not continue on into the next decade.”
The Freedonia Group says that once the inventory backlog is reduced, US housing construction activity is expected to pick up, as longer-term demographic factors will support demand for new housing.
Through 2011, new housing units are projected to nearly match the 2006 performance at 1.9 million units. That performance will be more than respectable in terms of recent history. Housing starts stayed in a 1.8-2.0 million range from 1996 through 2003 before rising to 2.1 million in 2004 and 2.2 million in 2005.
In a new Industry Study on World Housing, Freedonia says global demand for new housing is expected to increase 2.1% per annum through 2011, generating the construction of nearly 58 million new
The most rapid gains will be in the Africa/Mideast region (led
by Nigeria), spurred by the most rapid increases in population and household formation of any region.
Measured in terms of the inflation-adjusted value of residential
construction, China is forecast to post the fastest advances over the forecast period. Real residential construction expenditures in China will expand 8.1 % per year through 2011.
Mexico will enjoy one of the fastest increases in the number of new
housing units through 2011, with growth of nearly 5% per year to one million units.