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| February 28, 2008 | For more information, contact |
Relief for Residential Construction Market
Won’t
Occur Until Mid-2009 |
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SKOKIE, Ill.— Already grim conditions facing the residential construction market are expected to worsen in 2008 according to a recent PCA Economic Research report. High home inventories will cause housing starts to decline 25 percent in 2008 from already depressed 2007 levels. By the end of 2008, PCA expects a 9.5 to 10 month supply of homes to be in “inventory” for sale. According to Edward J. Sullivan, PCA chief economist, the large number of foreclosures caused by the sub-prime crisis is a main contributor to the large inventory that will depress start activity. “Typically builders accelerate start activity when the inventory supply reaches five months,” Sullivan said. “A significant improvement in sales and inventory conditions is not expected until the second half of 2009.” Because 85 percent of total home inventory is comprised of existing homes, increasing sales is key to the residential sector’s recovery. Although prices will decline by eight percent in 2008, tight lending standards, weak economic conditions, and slower household formation will doom 2008 home sales. “Even though buyers can get better priced homes in 2008, they must now have good credit scores and as much as a 20 percent down payment to qualify for loans. With job and income gains expect to slow during the next four quarters, most potential home buyers will back away from such a major purchase until the economy is more stable,” Sullivan said. The recent strong monetary and fiscal stimulus actions will start to have a positive impact in the second half of 2008 and first half of 2009, with job creation accelerating in mid- to late-2009. “These conditions could result in a significant acceleration of sales activity, allowing the healing process for the housing market to truly begin.”
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