Housing Slump Seen as Worst Since World War II

The housing market, caught in the grip of the nation’s overall financial crisis, is showing no signs of recovery, with the downturn shaping up as the worst in the post-World War II era (see related graph, right). Among the statistics and forecasts released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

Housing Starts & Sales

Reflecting “profound uncertainties” tied to financial market shocks, builder confidence in the market for new single-family homes receded to a record low in October, the National Association of Home Builders reported last month. The Washington, DC-based NAHB pointed to events on Wall Street, the deterioration in job markets and weakness in consumer confidence as the key reasons behind declining builder confidence. In an ongoing effort to pare down inventories of unsold homes, builders further reduced housing production in September, with U.S. housing starts falling 6.3% to a seasonally adjusted annual rate of 817,000 units, the slowest building pace since early 1991. In contrast, sales of newly built single-family homes turned upward in September, posting a 2.7% gain to a seasonally adjusted annual rate of 464,000 units.

Existing-Home Sales

Existing-home sales increased in September – the first time since November 2005 that home sales have been above year-ago levels – according to the National Association of Realtors. Resales rose 5.5% to a seasonally adjusted annual rate of 5.18 million units in September, from a level of 4.91 million in August; they were 1.4% higher than the 5.11-million-unit pace in September 2007, the NAR said. Sales were boosted by improved affordability conditions, the NAR said. Impacted by the large supply of unsold homes, tighter lending standards and record foreclosures, prices of U.S. single-family homes plunged a record 16.6% in August from a year earlier, Standard & Poor’s reported last month. The national median existing-home price for all housing types was $191,600 in September, down 9% percent from a year ago, the NAR said. Compared to a fairly small share of foreclosures or short sales a year ago, distressed sales currently represent 35-40% of transactions, the NAR pointed out.

Residential Remodeling

The economy and housing market remain key hurdles for remodeling activity, according to the Joint Center for Housing Studies at Harvard University, which forecast last month that homeowner improvement spending between this past June and the second quarter of next year will be 12% less than it was during the same time period a year earlier. According to Joint Center Chief Economist Kermit Baker, the nation may be nearing a cyclical low point for home improvement activity. “Existing-home sales appear to be stabilizing and interest rates for financing home improvements are favorable,” said Baker, noting, however, other market indicators “continue to deteriorate.”

Cabinet & Vanity Sales

Sales of cabinets and vanities fell sharply in September compared to September 2007, the Kitchen Cabinet Manufacturers Association said last month. According to the Reston, VA-based KCMA, manufacturers participating in the association’s monthly “Trend of Business” survey reported overall cabinet sales declined 18.5% in September compared to September of 2007. Sales of stock cabinets fell 15.3% while semi-custom cabinet sales dropped 21.0% and custom cabinet sales fell 21.4%, the KCMA reported. Year-to-date sales through the first nine months of 2008 were down 17.3% compared to the January-September period of 2007, the KCMA added.

Market Analysis

Housing Downturn Seen Easing in 2009, Amid Uncertainties Termed ‘Unprecedented’