Housing starts and sales both increased slightly in the first quarter since last December. Over the same period, inventories of homes for sale declined significantly, homebuilders slowed work on homes under construction and the decline in home prices accelerated — a necessary condition for the market to recover.

However, housing permits continued to decline. Home affordability weakened although it is still very high. Consumer Confidence dipped a little further and remains at a recession level. And fixed mortgage rates inched up slightly to near 6.0%.

The turnabout from collapse to recovery is likely to take several months before it is fully established. Materials, equipment and service suppliers to housing will not realize measurable and sustainable sales increases until the end of spring at the earliest.

Home affordability has jumped to a level consistent with housing starts 70% higher than currently but this positive impact is on hold until consumer confidence rises from the current recession level reading. How quickly housing starts recover depends on how long and deep the economic recession is. Our outlook is for the recession to end in June or July which will provide the boost in consumer confidence needed to spur home sales.

Note that the outlook is for the direction of change to be positive by midyear but also for the level of activity in housing to remain depressed well below average beyond 2009.

The mortgage market problems that set off the housing collapse are now well enough on the mend that credit access and cost trends are contribution to a stronger rather than a weaker housing market. Nonetheless the aftermath of the mortgage mess will keep housing activity at a depressed level for several years even though activity at the job site begins to expand soon.

This restraint takes two forms. First, most of the anticipated foreclosures have yet to occur. As they occur they will add to the surplus of homes for sale. Second, more than 10% of homeowners are unable to move to a new house because the plunge in home prices has pushed owner equity below the market value of the home.

Housing Market Monitor — March 2008

Abbreviations: NAR = National Association of Realtors; NAHB = National Association of Home Builders;
OFHEO = Office of Federal Housing Enterprise Oversight.
Table: Reed Construction Data and Reed Construction Data - CanaData.

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