The near collapse and weekend rescue by the Treasury and the Federal Reserve Board of mortgage giants Freddie Mac and Fannie Mae had reminded investors why mortgage investments are risky. The takeover of the $19 billion IndyMac Bank, another California subprime lender, by the Federal Deposit Insurance Corporation also contributed to an aversion to mortgage investments.
However capital is found to keep Fannie and Freddie operating, the consequences will be higher mortgage rates, tighter credit approval standards and the failure of some home purchases in progress to close.
Reed Construction Data has lowered the outlook for housing starts through 2009. We now expect starts to remain at the recent 1.0 million level until late this year and then recovery to the depressed September 2007 level by the end of 2009. Home affordability would normally support a much higher level but recession level consumer confidence prevents this.
This is still more downside potential. Not all of the capital lost in the subprime collapse has been accounted for. It is still possible that another large financial institution could fail, forcing another round of mortgage rate increases and tighter credit standards. Also, as the foreclosures that banks provided loss reserves for begin to happen they could be larger than anticipated since the economic outlook has weakened since many of the loss estimates were made.
U.S. Residential Building Construction
(thousands of units)
| Monthly Figures (1) (latest actual values) |
|||||||
| Actual | Forecast | ||||||
| Apr-08 | May-08 | 2005 | 2006 | 2007 | 2008 | 2009 | |
| Northeast (% change is period versus same period, previous year) |
91 | 147 | 189 | 171 | 143 | 124 | 134 |
| -44.2% | -10.9% | 7.4% | -9.6% | -16.7% | -13.4% | 8.7% | |
| Midwest | 164 | 123 | 357 | 285 | 206 | 146 | 185 |
| -20.8% | -50.0% | 0.5% | -20.2% | -27.7% | -29.3% | 26.7% | |
| South | 501 | 479 | 1,001 | 912 | 675 | 520 | 602 |
| -31.6% | -31.4% | 10.4% | -8.9% | -26.0% | -23.0% | 15.8% | |
| West | 252 | 226 | 551 | 444 | 317 | 230 | 266 |
| -34.5% | -30.7% | 7.3% | -19.4% | -28.5% | -27.6% | 15.6% | |
| Total | 1,008 | 975 | 2,073 | 1,811 | 1,341 | 1018 | 1186 |
| -32.2% | -32.1% | 6.3% | -12.6% | -26.0% | -24.0% | 16.4% | |
| Total Single-family | 681 | 674 | 1719 | 1,474 | 1,034 | 698 | 848 |
| -43.2% | -41.2% | 7.1% | -14.3% | -29.8% | -32.5% | 21.4% | |
| Total Multi-family | 327 | 301 | 354 | 338 | 307 | 320 | 338 |
| 13.1% | 3.8% | 2.6% | -4.7% | -9.2% | 4.4% | 5.7% | |
| New Home Sales (2) | 525 | 512 | 1,279 | 1,049 | 764 | 525 | 613.75 |
| -42.1% | -40.5% | 6.5% | -18.0% | -27.2% | -31.2% | 16.8% | |
| Manufactured Home Shipments | 90 | 92 | 148 | 118 | 96 | 89 | 94 |
| -5.3% | -5.2% | 13.8% | -20.0% | -19.3% | -7.2% | 6.0% | |
(1) Monthly figures are seasonally adjusted at annual rates (SAAR figures).
(2) Based on a survey of homebuilders; excludes homes built under contract and multi-family rental units).
Actuals: U.S. Department of Commerce, National Association of Realtors, Freddie Mac.
Forecasts and table: Reed Construction Data.
Mfg. home shipment data for Feb. and Mar.
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