Housing Economists Say Bottom is Near

Housing starts will continue to decline through the first quarter of 2007, but then may begin a modest return, according to David Seiders, chief economist for the National Association of Home Builders. Speaking at a year-end teleconference, he was joined by David Lereah, economist for the National Association of Realtors, and David Berson, chief economist for Fannie Mae, with all three agreeing that "we're pretty close to the bottom." "Our forecasts are all pretty similar," said Berson. "The main differences are in the timing." He currently sees the downward motion in housing continuing a bit long, but, he added, "it will not continue throughout 2007."

"The good news," said Lereah, "is that this contraction is relatively short-lived." Previous downturns in housing, he noted, could be attributed to weak economies, job losses and related issues. This one is due to affordability problems, partially caused by price escalations attributable to investor activity. Investors have pulled out of the market now.

Lereah emphasized the regional nature of the market, pointing out that certain areas—notably those where there wasn't a lot of investor activity—are already recovering. The downturn will seem much longer in areas where local inventories are still high, he said, pointing to South Florida as an example.

Seiders suggested new home sales were already bottoming out, and starts should bottom out next. Overall, he expects the 2007 housing numbers will be off from 2006, but then start to creep back up in 2008.

Looking at the remodeling market, he estimated that it's actually going to be up a small amount in 2006. People tend to invest in remodeling after buying a new home, but there's a lag in the spending. New home sales were at record levels not too long ago, and that fact has probably going to translate into small gains—about 1 or 2 percent—in total remodeling spending both for 2006 and 2007.