• Significant deterioration in economic conditions, particularly in 2008Q4 and 2009Q1, has motivated downward revisions to our housing market forecasts for 2009-2010 throughout the US. Financial market stress and the resulting credit crunch has been national in scope, affecting all regions and pushing all housing markets down together. Rising unemployment, particularly acute in some areas, has severely undermined consumer confidence and contributed to shrinking demand for housing production.

 

• House price stabilization will be a critical element to market recovery. House price appreciation and depreciation have varied greatly throughout the US. Recent house price declines have returned some areas to more normal balance between house prices and incomes, setting the stage for early recovery; other areas, unfortunately, remain significantly out of balance and are vulnerable to further price declines, despite the declines already experienced.

 

• Measures of house prices relative to income indicate large disparities between the most and least over-heated markets. The house price declines that have been working their way through the markets have been proportional to the earlier price increases, suggesting some local markets have reached a floor for prices. Conditions with respect to prior over-building and/or foreclosures will also be important factors affecting house prices.

 

• Building activity nationally declined substantially through 2008, ending the year at 44 percent of pre-boom or “normal” levels of production (average production during 2000-2003). NAHB’s forecast is for further reductions early in 2009, bottoming out in the second quarter, before turning the corner and gaining strength through the fourth quarter of 2010. Variation among the states will be large, with the strongest states exceeding 70 percent of pre-boom production and the weakest states still mired below 30 percent at the end of the short-term forecast period.

 

• Properly functioning credit markets at all levels will be critical for recovery in both the overall economy and housing markets. A broad-based financial sector recovery will be necessary to support broad economic growth, availability of mortgage credit will be required to support a revival in home buyer demand, and the availability of production credit supporting land development, acquisition and construction will be necessary to ensure that builders are able to return to production as demand recovers. Ongoing efforts by the Federal Reserve and Treasury to restore stability and confidence in the financial sector will be critical components for recovery in the broader economy and the home building sector.