The National Association of Home Builders chief economist David Seiders spoke at the Greater Atlanta Home Builders Association’s Fall Membership Meeting on October 2, 2007. Seiders gave a lively presentation on his views on the housing marketing in the Atlanta area, as well as in the nation. Here is a synopsis of his speech.
The U.S. job market is questionable and the overall U.S. economy is in a weakened state. The housing downswing has impacted this. The slow growth phase will continue through the end of the year.
What will the Federal Reserve do? We saw the first rate cut on Sept. 18. It took the Fed a long time to deal with the financial turmoil caused by the subprime mortgage market problems. Half a point isn’t going to pull the housing market out of the downward spiral. The impact of federal policy on the housing market isn’t what it used to be. And, most of all, the problems in the mortgage market can not be fixed by cutting the rate. The Fed will need to do more. Seiders predicts quarter point cuts again later in October and again in December.
The process going on in the housing market was kicked off by the Fed when they flooded the system with liquidity in 2003. Lending standards collapsed and loans could be sold sliced and diced. This makes the securities market the big villian. House price appreciation in many markets destroyed affordability.
Looking at the timing of things, there is a close correspondence between turning points in the local and national market. Similar factors affect both markets.
First Quarter 2008 should hit the bottom of the market for housing starts. The nice thing about Atlanta is that it didn’t have a huge influx of investors. Atlanta area never had boiled up appreciation and thus didn’t draw investors. Atlanta had 6-percent appreciation in home prices vs. 18-percent appreciation nationally. With 6-percent appreciation in 2005 compared with 1-percent appreciation in 2007, Atlanta is in good shape for when the market starts to turn. Atlanta has seen lots of decline already. Seiders expects that Atlanta will be at the bottom at the end of second Quarter 2008. We will have taken a 40-percent adjustment and be at a level of housing starts similar to the early 1990s.
The GOOD NEWS is that once the market stabilizes, there will be lots of room for growth. Assuming that nothing bad happens on the immigration front, we will be facing enough demand for the largest housing growth in the history of the United States. This is the positive story.