For the builders and associates at the National Association of Home Builders Show in Las Vegas, the impact was against a brick wall of bad news. "When David Crowe, chief economist for the NAHB delivered his outlook for 2008 at last year’s convention he missed the mark – he was not negative enough."
Economists from the NAHB, Freddie Mac, mortgage insurer PMI Group Inc. and the Portland Cement Association trade group all concurred on the prediction that this year would be worse than 2008 in terms of starts and overall housing activity.
The outlook reflects grim forecasts that call for home prices, new construction and home sales to decline this year, while mortgage defaults, foreclosures and unemployment continue to rise.
But there is always another side of the coin … "We expect '09 to be the down year, to be the bottom," Crowe said during a news conference at the International Builders' Show. "We are expecting that trough to occur sometime in the middle of this year, and for us to come out the other end of '09 on an upswing."
This is where the Show should have adjourned, agreeing to reconvene next year. After all, there is so little good news, and it is Vegas.
But apparently they toughed it out, as builders do, and the bad news kept coming. Let's apply a little perspective - widening the apurture so to speak - before I continue with the views from Las Vegas.
I would guess that over half of the attendees at the NAHB show are too young to have any real memory of the recession of the early 1980s. Time erases the pain, but it was really terrible, particularly compared to the relatively mild recessions of the early 1990s and 2001.
Home sales plummeted. At their worst, they were 30 percent lower than they are even now (again, adjusted for population size). The industrial Midwest was hardest hit, and the term “Rust Belt” became ubiquitous. Many families fled south and west, helping to create the modern Sun Belt.
As bad as the current unemployment number is (and still growing), it is still not that close to its 1982 peak of 16.32 percent (or anywhere near its Depression levels, which were probably above 30 percent). The early ’80s really were that bad.
Take these roadblocks and add soaring interest rates, the like of which most professionals today can't even imagine. This chart from Mortgage-X.com illustrates the prime rate/CMT from 1949 to today. Click graph for larger view at website.
I was selling high-end condos in Buckhead and downtown Atlanta at the time. With these interest rates the only chance we had was retired cash buyers. Market recovery from the early 1980s was much slower than the 1990s and 2001 recession, but it did come.
So here's the rest of the story from the NAHB show, but compared to the market conditions of 1980, I'll take 2009 any time.
- Crowe said he expects the number of new homes constructed to fall by 29 percent this year from last year, but then jump by 34 percent in 2010. He sees new home sales falling 14 percent this year.
- The upswing won't be as strong as in previous recoveries because there are too many unsold homes on the market. "We won't be able to get through those in one year, and we'll still probably have house price declines," Crowe said.
- 2008 saw a reduction in housing starts to 441,000 (the lowest since records have been kept) down from the highwater mark of 1.7 million single-family starts in 2005.
- Despite interest rates at a 40-year low and housing affordability at “its highest level since the 1970s”, people are still sitting out the dance, fearing for their jobs and overall malaise of the economy. Crowe warned that even though consumer confidence is at a near historic low, things would probably continue to deteriorate in 2009.
- The basic premise behind what's happening with housing is an imbalance between supply and demand, Crowe said. The nation has an excess "overhang" of 6.2 million homes for sale, about 1.5 million too many, he said.
- Continuing the “tell it like it is” address, Frank Nothaft, chief economist for Freddie Mac predicted that delinquency rates on home mortgages are expected to go higher in 2009. “Rising unemployment is the ‘trigger event’ for foreclosures,” he said.
- "The credit box for home mortgages and commercial mortgages has tightened over and over in the face of mounting defaults," Nothaft said.
- The benediction sounded something like this:
Longer term, industry economists said housing should rebound strongly, as it always has. Demand by the children of baby boomers is expected to fuel home sales over time, as is overall population growth.